If you happen to read the Asia Pacific M&A Review 2020 by Herbert Smith Freehills you will easily conclude that the report while earmarked 2020 was written much earlier as there was no mention of any major macroeconomic disruption other than the percolating US-China Trade war.
In contrast PwC noted that 1Q2020 saw many companies across Asia-Pacific (APAC) “pulling back from M&A activities, putting them on hold until the impact of the Coronavirus (COVID-19) outbreak becomes more certain.”
PwC noted that 1Q20 deal volume in APAC's financial services sector decreased by 26% as compared to 4Q19 and total deal value fell by 53%, reaching its lowest level in the last decade.
Describe the M&A landscape in 2019. Now compare the M&A scene mid-2020. What can you conclude?
Chloe Chan: Global M&A activity in 2019 was driven by persistently low interest rates and ample cash reserves for corporates and private equity firms. However – amid US-China tensions and a sluggish Eurozone growth – M&A activity was slightly down in 2019 compared to 2018.
Due to the slowdown of the COVID-19 pandemic, M&A activities in 2020 are drying up with transactions either cancelled or postponed. One of the reasons is the uncertainty of the global economy, with a recession seen as increasingly likely. Businesses are hedging and becoming more cautious in investment strategy, including M&A.
There are also practical and palpable reasons at play: Due to the COVID-19 pandemic, there are restrictions on movement, both domestically and internationally. Many multinational corporations, regional businesses and banks have instituted travel bans and some countries have formally tightened their borders. These measures have slowed down or even halted the negotiations.
Do you see COVID-19 irreversibly changing the course of M&As?
Chloe Chan: COVID-19 will imminently change how M&A activities are conducted. At this stage, we are still uncertain how long this pandemic will last and how it will change business operations. But there will likely be greater emphasis on due diligence – and the primary focus of such due diligence will also be changed.
Buyers will likely undertake more detailed due diligence on the Target’s operations, especially supply chain dependency, operational resilience and business continuity planning. There will also be an increased focus on Target’s key commercial contracts to determine whether there are crisis-related special termination rights or force majeure clauses.
In addition, the COVID-19 pandemic will likely change how M&A-related contracts are negotiated. Buyers are likely to seek additional security to shield against events that are detrimental to Target’s business. A Material Adverse Change (MAC) clause is also likely to become more common. Furthermore, the definition of the MAC clause will be more heavily negotiated post-pandemic.
What attracted you to the M&A scene?
Chloe Chan: M&A deals are complex and challenging. There are many intricate, detailed steps to working through in M&A. There is a great deal of excitement during the process – ranging from deal sourcing, due diligence and negotiation all the way to closing and integration.
I especially like the negotiation process as it is not just about how good you structure a deal, but also how good you understand people. The negotiation process can become a game of chess. Price is certainly a very important consideration but not always the only one.
You have to assess different people’s personalities and connect with them. This is what helps you understand the processes that matter when it comes to carrying out a successful M&A, such as staff retention or indemnification clauses.
Do you see the playing field dominated by male professionals? Do you see an advantage (or disadvantage) being a female M&A professional? If there is one unique advantage to being a female in this field, what would it be?
Chloe Chan: I feel that the playing field is quite even between male and female, at least from what I have experienced. If there is one unique advantage to being a female in this field, I think is to bring gender diversity to the team. A gender-diverse workforce generally enables better problem-solving, which leads to greater success.
What have you learned from the industry so far?
Chloe Chan: Many people tend to regard M&A as a science because it is based on spreadsheets, models and contract terms. But what I have learned in these years is that M&A is more like a piece of art.
If you apply the right tools and intelligence when you are conducting M&A, you will be able to identify the risk factors, evaluate the value of the business and structure the best clauses that protect your interest in the transaction. However, you may not necessarily get the deal done or deliver the true value and synergies in bringing the two businesses together.
During the M&A process, it is always more about people than numbers. It is of the utmost importance to connect with the people involved, build relationships with them and ultimately gain their trust. This onboards everyone to the same journey, allowing the team to sail through the challenges and achieve common goals in the future.
What do you advise to other women interested in making a profession in M&A?
Chloe Chan: My advice is to not be afraid of failure. I believe that the path to success will always be paved with failures – but failure often teaches us more than success. Failure is inevitable in workplace and in life – and you must learn how to face it. Remember that failure is not always an indication of ability but, more often, it is an opportunity and a lesson for you to learn.
So try not to be afraid of it and try not let failures destroy your confidence. After all, it is important to be confident in sharing your views, presenting new ideas and providing suggestions.