12. Dec 22

M&A market facing new challenges

The COVID-19 pandemic, inflation, and the war in Ukraine. These are just some of the latest challenges facing the M&A market. And yet, experts expect that 2022 will be another year in which we see a rise in the number of corporate transactions.

For many businesses, organic growth alone is not enough to maintain their position in the market over the long term. Private equity investors expect takeovers and the issuance/acquisition of company shares. And in times of crisis, the M&A market must confront new challenges.

We at the commercial law firm MTR Rechtsanwälte can report that the outbreak of the coronavirus pandemic initially resulted in a sharp decline in corporate takeovers and transactions in 2020. But the M&A market appears to have bounced back from the dip. Indeed, 2021 even saw record levels of mergers and acquisitions worldwide. However, COVID-19 is still with us, and the consequences of the pandemic still need to be taken into account when it comes to corporate transactions.

Many companies have sought government assistance due to the pandemic. These support measures may have implications for the full or partial sale of a business. If, for instance, significant parts of the business were sold while government assistance was still being claimed, the financial aid may ultimately have to be paid back in full or in part.

While it is the seller who is most at risk, the buyer must also be mindful of the potential ramifications of government support measures on a transaction. In particular, it is a good idea to look into possible repayment obligations tied to the financial aid and to factor these in prior to purchasing.

The sanctions imposed in the wake of the war in Ukraine on Russia and companies with ties to Russia may also have implications for corporate transactions. Any acquisition must be preceded by a careful review and risk assessment of business activities related to Russia. It is also worth investigating whether Russia-related business can be taken out of the deal.

Additionally, the war in Ukraine has led to a rise in inflation, and interest rates are slowly following suit. This may further complicate corporate transactions. On the other hand, small and medium-sized businesses in particular are already suffering from rising energy prices, so much so that selling up shop is becoming an increasingly palatable option for them.

Current geopolitical developments entail many risks that are difficult to calculate. All the more reason to subject corporate transactions to a thorough due diligence review.

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