Introduction
The deteriorating economic situation in the U.S. as a result of the ongoing COVID-19 pandemic, which began at the end of the first quarter, is expected to hamper deal activity through the remainder of 2020 and into 2021. The overall effects of the pandemic on middle market transaction activity are not entirely evident at present, but Mercer Capital’s direct and anecdotal experience with deals in process at the onset of the pandemic suggests that deals are being deferred not only due to strategic concerns, but also because of due diligence execution difficulties. With diligence teams and other key players in the transaction process forced to work from home due to shelter-in-place orders in jurisdictions across the U.S., the background work in the execution of a transaction has been placed on hold until the virus abates. On a strategic level, some buyers are renegotiating purchase considerations based on the environment and evolving performance of the seller’s business. Buyers under these circumstances are also modifying material adverse change (“MAC”) provisions within transaction documents and assessing their ability to terminate transactions due to a MAC occurrence. Historically, the threshold to demonstrate a MAC occurrence has been held relatively high by courts in New York and Delaware. As economic and business conditions continue to evolve, transactions that were in process before the pandemic but had not yet closed will continue to come under MAC scrutiny from buyers and sellers and will be at risk of not closing.
Also in This Issue
U.S. Deal Value & Volume
EBITDA Multiples
EBITDA Multiples by Buyer Type
U.S. Deal Volume by Industry
Debt Multiples
Number of Deals by Buyer Type