The COVID-19 pandemic and global economic lockdown has seen merger and acquisition (M&A) activity plummet. From $3.9 trillion in global takeovers in 2019, announced deals plunged 51% in the first quarter in the US according to Refinitiv. Uncertainties in the business and capital markets have led to buyers delaying or cutting back on their acquisition plans. But with crisis comes opportunity. Those able to navigate the new risk landscape may find compelling deals on the other side of the pandemic. Now more than ever, expert help with strategic planning, modelling out “what if” scenarios when the world frees up from lockdown, and preparing better for post-acquisition merger integration can help owners succeed in acquiring or being acquired.
When it’s time for a private company to go public, or fundraising is needed on a large scale, an IPO is not the only option. There’s also a less-well-known and, until recently, less-well-respected option: a reverse merger into a public shell oftentimes called an Alternative Public Offering (APO).
This process, which can be faster and cheaper than a traditional Initial Public Offering, is growing in popularity and might grow faster in our confusing coronavirus world.
Scott Jordan (no relation to InterimExecs’ CEO Robert Jordan), an investment banker and CFO who spent 30+ years working in biotech, engineered a reverse merger of a biopharma company in 2019. He says that while the virus has caused capital flow interruptions, investors in the private markets are still providing capital to companies with novel / scientifically validated biotechnology companies. That means reverse mergers and PIPEs (Private Investment in a Public Entity) can still raise money needed to complete their deals. He estimates that about 20 biotech firms debuted in the public markets last year as a result of reverse mergers and the number is on track to repeat in 2020, despite the virus.
But let’s back up a step and begin at the beginning.
The reach of coronavirus in the manufacturing sector has been vast. A survey by the National Association of Manufacturers revealed that 78% of manufacturers anticipate a financial impact, 53% foresee a change in operations, and 36% are experiencing disruptions in their supply chains. The Federal Reserve reported that in March production fell 6.3% in the manufacturing sector – the largest drop since 1946. This has everyone asking what the short and long-term impacts look like as major economies around the world seemingly come to a halt to curb the spread of the virus.
Manufacturers everywhere are running into cancellation of exports, delayed payments, and disruptions in logistics. Economist Larry Hu told Bloomberg “The worst is yet to come for exports and supply chain. For the whole year, China’s exports could easily fall 10% or probably more.” Meanwhile the world is grappling with how to deal with supply chain break downs and inventory shortages of critical medical equipment. The US government reportedly has almost depleted it’s emergency stockpile of masks, respirators, gloves, and gowns.
Still — essential companies such as ones producing food, medical supplies, or supporting necessary infrastructure and distribution of supplies are up and running. Leaders of these companies face a whole new realm of challenges as the health of workers and creating and maintaining a safe environment become top concerns.
While many companies are facing new challenges and increasing volatility, we’ve found that most leaders’ responses and outcomes tend to be unique. While quarantined with COVID-19, Todd Herman, author of The Alter Ego Effect, decided to interview 29 CEOs to hear how they described their circumstances.
Each company was experiencing a downturn. Herman analyzed each CEO’s word choice and language to see how they were reacting, noting the importance of a leader’s pronouncements: “words create reality.” He saw big differences in how executives were wired and reacted to the economic rollercoaster. His findings led him to divide the CEOs into three groups:
Fear-Focused CEOs – emotional, concerned, and overwhelmed. Tended to use negative future pacing words like ‘struggle’, ‘fear’, ‘hard’, or ‘difficult’. Spent the most time watching media or finger pointing rather than what could be done.
Unfocused CEOs – dismissive, uncertain, wait and see. Talked about getting a plan, but tended to use the word ‘plan’ in a negative or needs-based way.
Strategy Focused CEOs – take and use what’s given, focused on growth/opportunity. Positive. Spending time leaning into networks.
Uncertainty is growing in the US with coronavirus cases mounting. California, Illinois, Michigan, and other states have taken serious actions with shelter-in-place orders, leaving many people wondering how this will impact them personally as well as their companies and the economy as a whole.
At the same time, we’re reflecting on how much there is to be grateful for, including the strong relationships we’ve built over 10+ years with inspiring leaders. These are women and men who focus their careers on running into the burning building – the company in trouble – learning fast, listening, assembling resources, providing fresh and objective insights, developing new plans and actions for survival and ultimately blueprints for a brighter future.
We recently convened a call with some RED Team execs who shared how they are adapting to new ways to work. Many executives shared experiences on the front lines figuring out how to help combat the virus and also help people work smarter and safer:
Surviving a period of zero or near zero revenue is extraordinarily difficult. The fundamental challenge is how to use time and capital purposefully. Most businesses have multiple constituents with diverse and conflicting interests. There is no one correct course of action. What is beneficial to one constituent is likely to be harmful to another.
Consider the following: The shareholders, owners and founders of a business have invested their own capital, have taken risk and have worked hard to create equity value. These owners could be individuals, institutional investors, private equity groups and hedge funds or could be a publicly owned company. They could be US citizens or foreign entities. Should the protection and retention of owner and shareholder value be the primary and controlling objective?
The worldwide outbreak of novel coronavirus (COVID-19) is showing that crises tend to bring out the worst—and the best—in people.
Amid frenzied panic buying, supply hoarding, and finger-pointing, we’re also seeing individuals and businesses step up to help others. If the cloud hovering over the economic system has a silver lining, it’s that temporary changes to how companies define their mission statement could become permanent. Instead of focusing only on their bottom line, businesses might emerge from the crisis more focused on the greater good. In fact, many companies are already leading the way and providing inspiration during these uncertain times.
Anxiety is in abundance this Friday the 13th. We write from our mostly empty office building where both cautiousness and outright fear from COVID-19 seem to be in full effect.
Stock markets worldwide have become nonstop rollercoasters, now mostly plummeting downhill. Grocery stores are packed as people stock up on supplies. Panic seems to be at the root of many news articles and communications. As an owner, investor, or member of the management team it can be difficult to navigate the chaos to determine what this means for the future of your company and employees.
As owners and leaders it’s our obligation to step up during crisis – to be a light to those around us. This is at the heart of what we do. InterimExecs RED Team – an elite team of executive change agents — often run straight into the fire, doing what is necessary to listen, diagnose, set plans and execute. The successful leader must be the calm in the midst of the storm – a point of stabilization for the team and a trusted partner for those around them. So how should we react to the events around us?
U.S. Banks are growing concerned — if not alarmed — and are reevaluating just how lax they are when it comes to handing out commercial loans. With sour loans on the rise, that’s not a pretty picture for companies that rely too much on credit lines or commercial loans. This is, in essence, a self-imposed business risk, as they are more dependent and susceptible to any fluctuations that occur.
A recent Financial Times article reported that non-performing loans increased by 20% at ten large commercial lenders. How much of an impact is that on the bank industry exactly? According to the Financial Times analyst, that’s a hefty $1.6B in the first quarter alone, a significant shift from credit quality since 2016, an era where the dust had settled from crashes and subsequent defaults on loans. The future started looking bright. Lending portfolios and credit quality began to improve.
With merely three years of positive momentum, fast forward to present day and all that has changed and not for the better. “Since most businesses utilize a credit line or other commercial loans, any slowdown will impact all types of commercial lenders – banks, asset-based lenders and factors,” said Yoav Cohen, an interim executive who has spearheaded eight turnarounds and liquidations, each one successful in paying off secured lenders in full. Cohen has seen it all, serving in roles as varied as interim CFO, COO, and a Chief Restructuring Officer.
In an interview with Marketplace reporter, Nancy Marshall-Genzer, InterimExecs’ CEO Robert Jordan, shared his insights on the increasing use of interim executives in public companies, privately held companies, and nonprofit organizations.
The piece discussed how in many cases interim executives are brought in during critical transitions – both in times of crisis and rapid growth. A good Interim CEO or other C-suite executive builds trust within the organization, and often serves as a mentor to set up the team for future success.