International Finance and Responsible Financial Management

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International Finance and Responsible Financial Management

When COVID-19 spread over the world in the first few months of 2020, it put existing and planned commercial activities in jeopardy, resulting in terrible effects for many. Despite certain commonalities, governments and organizations reacted in a variety of ways, with diverse consequences on the business sector in general and merger and acquisition (M & M&A) activity in particular. Although a lack of readiness was a concern at the start of 2020, businesses may now identify possibilities to better position themselves for success in 2021 and beyond. Managers learn how to generate value for their organizations in the aftermath of the COVID-19 outbreak. They effectively produce shareholder value through mergers and acquisitions, and this article will look at the specifics of these transactions in the context of COVID-19 (Gonsalez de Cossio, 2021). The corporate sector has faced unprecedented challenges in protecting firm operations, employee health and well-being, liquidity levels and funding sources, and balancing the interests of numerous stakeholders.

COVID-19 has a big impact on a lot of things, such as mergers and acquisitions (M&A), finance, the stock market, and contractual and commercial agreements. The goal of this article is to examine the wide impact of the COVID-19 outbreak on M&A transactions (Emmerich & Norwitz, 2021). The COVID-19 problem arose at a period when businesses were dealing with a wide range of mergers and acquisitions, which may be divided into three groups. Transactions under analysis or in process, transactions completed and awaiting closure, and transactions conducted and awaiting integration are the three types. Since early 2020, businesses and consultants involved in M&A transactions have focused on risk assessment, allocation, and mitigation in the M&A market (van Oijen, 2020). Furthermore, as more corporations failed to adjust to the pandemics obstacles, the review of departure strategies for completed contracts pending completion grew increasingly common.

Due to the lack of a distinct focal point, it is difficult to assess the value generated through mergers and acquisitions. Typical analyses compare share prices before and after a merger is announced, depending on short-term market movements to estimate the amount of value produced. One benefit of this strategy is that it gauges predicted value without being influenced by other factors such as subsequent acquisitions or changes in leadership (Lee & Trimi, 2021). Despite effective vaccine and booster programs, the virus continues to have a real-time impact on financial markets and M&A negotiations. The pandemic has had a significant impact on the creation of value and the logic for mergers and acquisitions in question. The current market research on the possibilities of an M&A acquisition for the Boots drugstore chain (Walgreens lines up Goldman Sachs to investigate alternatives for UKs Boots business, 2021) is an example of this phenomenon. Because the franchise has been badly harmed by lockdowns, Walgreens Boots Alliance, the company that controls it, has moved to M&A as a means of securing a more prosperous future.

Mergers and acquisitions are important strategic tools for continual adaptation, long-term growth, and international expansion. M&As, however, incur a significant amount of risk and produce varying outcomes even during steady periods. The coronavirus 2019 (COVID-19) pandemic suddenly ended the M&A industry, which had been gradually growing over the preceding decade since CEOs were more concerned with liquidity than long-term growth goals. As a result, many business experts and executives are attempting to determine how the COVID-19 pandemic has impacted M&A activity. Even though the M&A market has been continuously increasing over the last decade, it has always been a cyclical business, with boom times being tempered by regulatory reforms or economic downturns. The most current wave began in 2014 and was abruptly halted by the COVID-19 epidemic, as CEOs were more concerned with cash than long-term business goals. Several deals, including Xeroxs acquisition of HP, were terminated. Simply put, the M&A environment has transformed and is unlikely to return to pre-pandemic levels any time soon. While M&A was always regarded to be a sellers market, COVID-19 has transformed it into a buyers market by making low-cost assets and distressed enterprises more accessible.

Many buyers reconsidered M&A transactions and considered recourses, actions, and even aggressive negotiating strategies to renegotiate contract terms or even seek an exit. Although the impact of COVID-19 has yet to be completely established, sections dealing with closing conditions or circumstances precedent, as well as termination or leave rights, were the major factors that led to contract renegotiation and, in some cases, several lawsuits (Emmerich & Norwitz, 2021). Contracts for merger and acquisition transactions are frequently arranged to be signed at a specific moment in time, and the deal is only finalized once numerous requirements are satisfied. These criteria include getting corporate or governmental authorizations, which takes time and, as a result, introduces many risks connected with the transactions completion (Chrysoloras & Adinarayan, 2021). Between signing and closure, the target companys commercial or financial status may deteriorate, causing a buyer to desire or decide to terminate its acquisition commitment on the terms and conditions agreed in advance.

Various incorporation law concepts have been used in this context to allocate risks throughout the aforementioned transitional phase.. In general, the buyer faces systemic risks or hazards over which the seller has no control (Hill, 2021). During the interim period, the seller accepts risks related to the firms operation and administration. During the COVID-19 economic crisis, companies employed such legal procedures to reduce and minimize the danger of financial loss.

The major adverse effect (MAE) clause has provoked extensive debate and, perhaps, legal action in light of the COVID-19 outbreak. As the name implies, this clause permits the buyer to terminate a purchase or association transaction before closing if an event or situation arises that has a significant negative impact on the target companys financial or commercial state (Bauer et al., 2021). MAE provisions are often divided into two portions and are hotly debated during M&A negotiations. The first section contains a brief account of events, situations, or facts that harm the targets commercial, financial, or operating state, as well as its ability to meet contractual obligations. The second half also includes natural calamities, war, and terrorist operations, as well as other related notions outside the sellers control. Pandemics, on the other hand, are included in this list due to the severity of their effects on the corporate sector.

To evaluate if the COVID-19 pandemic is a major adverse event that allows the purchasers to effectively exit the deal, a thorough examination of the MAE clause, the exclusions mentioned above, and the specific impact on the firm is necessary. COVID-19 and other pandemics have recently been excluded from such terms in M&A agreements unless the consequences are disproportionate to other enterprises in the same sector (Meyer et al., 2021). At the moment, there is no agreed-upon definition or interpretation of a significant adverse event severe enough to be considered within the official framework of business scholarship (Emmerich & Norwitz, 2021). Nevertheless, international precedents describe it as an incident that substantially impacts an entitys potential profits over a reasonable time or the long term. This idea of time is essential since it is anticipated that a buyer will purchase to make a long-term profit.

The actual value generation occurs throughout the integration process, also referred to as opportunity capture. Corporate managers recognize that the COVID-19 pandemic may have changed acquisition behavior, mainly two significant steps of the M&A process. The new methods of value generation rely on how firms recognize opportunities and identify appropriate target firms and how they try to capture opportunities through synergies, mainly through changes in their synergy and long-term goals.

In the face of the current COVID-19 scenario, bidders in M&A deals have attempted various escape methods, such as asserting a violation of terms about the companys functioning in its general operational routine between the signing and completion of the acquisition. These provisions are meant to guarantee that the sellers do not do anything that will have a significant impact on the target companys business between the time of signing and the time of closure (Tampakoudis et al., 2021). As can be seen, during the outbreak, managers were obliged to make judgments that were not always in line with standard business procedures or historical precedent to keep the organization running and alive.

Corporate customers frequently complain that managements actions in response to the COVID-19 pandemic violate the usual course of the business clause by straying from the companys operating procedures. Others, on the other hand, argue that the inability to respond to the impacts of the COVID-19 outbreak is a substantial violation of the normal course of business provision (Ahlstrom & Wang, 2020). On the other side, the sellers say that under this circumstance, the efforts made to remedy the COVID-19 issue are reasonable and up to the market standard M&A deals, a quick review of due diligence processes is also necessary. As a result of the impact of COVID-19, several components of due diligence processes should be given special consideration. Regulatory compliance is one of them (Tampakoudis et al., 2021). COVID-19 resulted in the enactment of several measures at the federal, state, and local levels, all of which have been subjected to numerous revisions. Closure of activities, restricted or staggered reopenings, health, and COVID-19 testing requirements, and associated restrictions limiting the use of personal data and confidentiality are all compliance components that must be examined in an M&A transaction.

COVID-19 has had and will continue to have a variety of ramifications for businesses in the future; as a result, due diligence processes should focus on the target industry and the risks connected with the target firm and third parties involved in its operation. Without a question, the present COVID-19 scenario has given birth to a variety of concerns that are now being addressed and evaluated with respect to M&A transactions. Many of these transactions lack a consistent meaning and should be evaluated depending on the agreements of the parties and the facts surrounding these contracts and their implications.

References

Ahlstrom, D., & Wang, L. (2020). Temporal strategies and firms speedy responses to COVID19. Journal of Management Studies, 58(2), 592-596. Web.

Bauer, F., Friesl, M., & Dao, M. (2021). Run or hide: Changes in acquisition behaviour during the COVID-19 pandemic. Journal of Strategy and Management. Web.

Chrysoloras, N., & Adinarayan, T. (2021). Strategists say market turmoil from virus is overdone. Bloomberg.com. Web.

Emmerich, A., & Norwitz, T. (2021). Mergers & acquisitions 2021 | M&A lessons from the COVID crisis | ICLG. International Comparative Legal Guides International Business Reports. Web.

Gonsalez de Cossio, J. (2021). How COVID-19 has affected global M& A transactions. International Tax Review. Web.

Hill, A. (2021). The art of mergers and acquisitions: to blend or bulldoze?. Ft.com. Web.

Lee, S., & Trimi, S. (2021). Convergence innovation in the digital age and in the COVID-19 pandemic crisis. Journal of Business Research, 123, 14-22. Web.

Meyer, B., Prescott, B., & Sheng, X. (2021). The impact of the COVID-19 pandemic on business expectations. International Journal of Forecasting., 1-16. Web.

Tampakoudis, I., Noulas, A., Kiosses, N., & Drogalas, G. (2021). The effect of ESG on value creation from mergers and acquisitions. What changed during the COVID-19 pandemic? Corporate Governance: The International Journal of Business in Society, 21(6), 1117-1141. Web.

van Oijen, P. (2020). Driving Value creation through proper design of goal realization frameworks. Journal of Creating Value, 6(2), 271-285. Web.

Walgreens lines up Goldman Sachs to explore options for UKs Boots chain. Ft.com. (2021). Web.

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