Covid-19 and an Unstable M&A Market

July 23, 2020


Data Privacy, Covid-19, and an Unstable M&A Market

Day Two, Bloomberg Law Leadership Forum:
Answering Privacy and Data Security Challenges

July 23, 2020

The Covid-19 pandemic is causing unprecedented challenges that touch every part of global business and the economy. Our speakers reflected on the impact of economic instability and data privacy risks on the M&A market.

*Note: This is an edited version of the live event broadcast.

Excerpt From an Interview of Robert Kindler, Vice Chairman and Global Head of Mergers and Acquisitions, Morgan Stanley:

Certainly the Covid-19 virus has affected M&A much more than other parts of banking. As I’m sure everyone’s seen, doing capital raises, debt raises, even IPOs, that’s all still available, but no one’s doing M&A. Just to give everyone a sense of that, if you start from March 16, which is the date of a lockdown, to date, and compare it to the same period last year at this time, the deal volumes, the actual dollar amount of deals, is down 76%. And the number of deals, we count deals that are larger than $100 million, the number of deals is down almost 50%. So we are in a period now where M&A is very, very inactive. Not surprising, given all kinds of uncertainties.

At some point we will emerge. But I think there are going to be very specific issues that come into play that have been different than the last time. There’s never been anything like this before, so people talking about how historically M&A is a cyclical business, and you kind of come out of it, there’s just nothing like this. In my view, when things start to pick up – and they will, at some point, you know, M&A has become a very important strategy, even more so than ever, because it’s difficult to get growth without M&A, it’s very hard to get it organically – but we’re going to have some real challenges here.

Bloomberg Law 2020 – Transactions

The impact of the Covid-19 pandemic-induced downturn on the transactional market has placed companies and deal attorneys in uncharted territory.

The primary one is regulatory, and there’s two aspects of that. There’s antitrust, but there’s also CFIUS. And by the way, both of those have implications for data and privacy, particularly CFIUS. But on the regulatory side, when we come out of this and M&A starts again, there’s a very negative political view toward M&A. There’s all kinds of bills in Congress trying to basically stop M&A for a period of time, the fear being that smaller companies will get bought off because they’ve been crippled with the virus.

None of those bills are going to get adopted, but the fact is that both sides of the aisle, bipartisan, are very focused on antitrust and regulatory. And, frankly, both of them are populist. Neither side likes big tech, big pharma, etc. So it’s going to be very hard to do deals. They’re going to get very, very close regulatory scrutiny.

This has happened over the last several years, but it’s now particularly in everyone’s focus. So what that’s going to mean is we’re going to see a lot of smaller deals, meaning very, very few deals above $5 billion. Most deals well, well below that, and also private equity firms are going to be favored bidders, because they don’t have regulatory issues generally.

In what percentage of deals you have negotiated in the past two years has privacy or data been among the top five most highly negotiated issues, regardless of whether the deal closed?

Based on polling data during the Bloomberg Law Leadership Forum in June 2020.

153 responses

Excerpt From the Managing Data Privacy Risk in an Unstable M&A Environment Panel Discussion:

Chauncey Lane, partner, Reed Smith: Another important consideration is, given the current environment that we’re in with Covid-19 and work from home, buyers should take time to look into how has the seller prepared its workforce to be in a distributed remote environment? Have they put in place policies and procedures that address how to dispose of sensitive information, shredding documents? Have they educated people who aren’t consistently working remotely, setting aside the current pandemic, on how to actually work remotely and how to access the network in a secure way? Are employees encouraged not to use their own personal devices and to get around those barriers, firewalls, and cybersecurity protections that the seller has in place?

So a very important consideration for the buyer to think about that’s something that perhaps was not as important before but is ever more important now.

It’s very important, particularly in the case of a growing company that doesn’t have a lot of experience when it comes to collecting, analyzing, and using data, and complying with data privacy environments – get the right advisers around you before you go into the deal.