Despite negative expectations as a result of the crisis generated by covid-19, M&A transactions grew in Brazil in 2020 compared to previous years, as shown by a PWC study on the topic. Although the volume has grown, we cannot fail to notice the sequelae in these transactions resulting from the pandemic.
On the investor side, the fall in confidence was apparent. 2020 was a year in which we had a great variation in the results of companies, compared to previous years. This variation was both downward (for those sectors that suffered from the pandemic, such as commerce and industry in general) and upward (for those who benefited from the pandemic, such as technology, health care and certain services).
The uncertainties of the companies’ future results made it difficult for investors to put a price such companies’ assets and, consequently, generated a greater distrust regarding their performance. The consequence was a natural nonalignment of the price offered by the investor and the expected price on the part of the seller / target company. Incentives have often been created in the negotiations to close this gap, such as the so-called “earn-out” (future performance awards).
On the side of the target company and sellers, insecurity has increased significantly. Negotiation is essentially about human interaction. The absence of face-to-face meetings caused a lack of initial empathy among the parties involved, requiring more time for conversations between the parties so that they could overcome the virtual barrier.
You certainly wouldn’t have a hard time selling a chair on an advertisement site to a total stranger, but selling your business or finding a partner without having ever met the investor in person can be a little strange. During most of last year many transactions were closed without the parties ever having met physically. Exchanging the famous “eye to eye” and “handshake” for a video conference and a virtual gift is no easy task! It was not uncommon for this situation to initially create discomfort and insecurity, especially for those who were selling. The social withdrawal was a great offender for the negotiation, causing the prolongation of the negotiations and often going for more conservative paths. Which, fortunately, was not enough to frustrate most transactions, which, as we have seen, grew in 2020 compared to previous years. In the end, there was an adaptation by all parties to the new reality imposed by the pandemic, an adaptation that will still be necessary during this 2021.
2021 arrives with the hope of the vaccine and perhaps the return of face-to-face negotiations, bringing greater stability to the economy and business. But, until that normalizes, we will have to learn to live with these sequelae that the pandemic has left in M&A transactions!
By Renata Simon, partner at Candido Martins Advogados
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