COVID-19 driving distressed M&A activity

October 06, 2020

Over the past six months, the M&A market has seen a rise in investor interest in distressed assets. In these transactions—unlike a typical M&A transaction—a target company is likely to have liquidity or structural issues.

Torys’ M&A and insolvency experts—David Bish, Konata Lake and Scott Bomhof—spoke to Canadian Lawyer Magazine about the increase in distressed M&A transactions amid the COVID-19 pandemic and how these unusual times are providing investors with unexpected opportunity.

Opportunity from crisis

Head of our Corporate Restructuring and Advisory practice David Bish in speaking with Canadian Lawyer said that although investors are currently conservative with their capital due to the ongoing economic uncertainty caused by the pandemic, the low-interest rate environment has created an opportunity for those looking to invest.

“There’s not a shortage of those who have money to spend in the right circumstance for the right opportunity,” David said.

M&A partner Konata Lake noted that part of the reason for the spike in activity is that valuations before the crisis were too high for some buyers to make a lucrative investment. Buyers, according to Konata, now have an opportunity to “kick the tires and look at things that a year ago they felt they may not have had a shot at.”

Speaking on the unknown effect the second wave of the pandemic will have on the market, Konata said that many investors have taken up a “wait and see” attitude.

WATCH: Tune into our webinar “Private M&A trends: what’s in store for 2021?” to hear more insight on private M&A trends from a corporate and litigation perspective.

Nuances of distressed dealmaking

Partner in our Corporate Restructuring and Advisory practice Scott Bomhof emphasized that distressed M&A is far more specialized than a usual M&A transaction as many distressed organizations have structural issues that need attention.

On the increase in Companies' Creditors Arrangement Act filings, which have risen by 46% in the past 12 months, Scott remarked that “the effort to restructure businesses, or use a sale process through court supervision, has jumped quite a bit.”

Further to this, David also commented that one of the positives of a distressed M&A situation is the “extraordinary diversity of tools” made available to parties that would be otherwise unavailable in a typical M&A situation.

“The toolbox encourages incredible creativity because there’s so much more you can do that you would not be able to do outside of a court process in a regular M&A situation,” he said.

To find out more about the impact COVID-19 is having on organizations, listen to the Torys Business Brief podcast “The art of fixing broken businesses” where insolvency lawyers David Bish and Kyle Kashuba discuss how this current financial crisis is different from the 2008 recession, what principal challenges companies are facing, and what management can do to ease the pressure.

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