16/4/2020 ‘Cash Is King Again.’ What Coronavirus Means for Mergers and Acquisitions.

- Barron's

PRIVATE EQUITY

‘Cash Is King Again.’ What

Coronavirus Means for Mergers and
Acquisitions.
By Luisa Beltran March 23, 2020 6:15 am ET

The private credit markets are

functioning but financing for new
middle-market deals is on pause as
Covid-19 continues to roil the
global economy .

First, the good news. Revolvers ,

which help companies fund
Photograph by Spencer Platt/Getty Images
themselves when cash is tight, are
being funded, and working capital lines are available, one large market
private lender told Barron’s. The bad news? There is no funding available for
M&A deals. “There are no new deals to fund,” the lender said.

The pause comes as coronavirus-related volatility has caused M&A in the first
quarter to grind to a near halt . Global announced M&A volume dropped 24%
to $621.5 billion spread across 8,465 deals as of March 20, Refinitiv said. U.S.
announced transactions are showing a more significant drop-off. Volume for
U.S. deals has plunged 57% to roughly $203.2 billion for 2,307 transactions.

Joshua Thompson, head of leveraged finance at law firm Shearman &

Sterling, said the private credit market isn’t frozen, per se. Instead, investors
are taking stock and evaluating risk. “They’re looking for value and going
through the whole process of repricing risk and taking selective
opportunities,” he said.

Transactions that are signed and subject to a binding agreement may have
little to no flexibility to renegotiate terms, he said. Sellers with deals that were
in process, but don’t have a binding agreement, may reassess those
transactions and decide whether to bring them to market, he said.
READ NEXT
The corona-related downturn, which has upended the stock market, presents Workers Are Getting the Short End
an opportunity for buyers with cash, Thompson said. He pointed to private- of the Stick from the Cares Act
equity firms, which are sitting on a $1.71 trillion war chest . “It’s a classic time This Mortgage REIT Might Still
Have Room to Rally, Analyst Says
to make a lot of money and support great companies and continue to keep
Buy Stocks Now, Investing Legend
those great businesses going if they’re facing temporary or adverse Burton Malkiel Says. Here’s What
developments,” Thompson said. “Cash is king again.” He Recommends.

https://www.barrons.com/articles/cash-is-king-again-what-coronavirus-means-for-mergers-and-acquisitions-51584958500 1/2
16/4/2020 ‘Cash Is King Again.’ What Coronavirus Means for Mergers and Acquisitions. - Barron's

One thing Thompson hasn’t seen is a wave of distressed assets coming to

market. “We know that is likely to come and that will present another series of
opportunities for investors that have been keeping their powder dry,” he said.

Private-equity funds that can do preferred equity or debt with warrants are
out “pounding the tables” and telling anyone who will listen that they’re open
and looking to put capital to work, one banker said. Private equity is also
super focused on figuring out what’s happening with their portfolio
companies. Some private-equity firms are reported to have told their portfolio
companies to draw down their revolvers.

On Friday, the stock market tumbled after New York Gov. Andrew Governor
ordered all nonessential businesses in the state to close. The Dow Jones
Industrial Average lost 913.21 points, or 4.6%, to 19,173.98 on Friday, while
the S&P 500 shed 4.3% to 2304.92, and the Nasdaq Composite dropped 3.8%
to 6879.52.

Leonard Klingbaum, a finance partner at law firm Ropes & Gray, doesn’t think
the private credit market is on pause but taking a “collective breath.” The
difference, he said, is that with a deep breath, there is still movement on
deals. With a pause, “pens are down” and parties may delay talks for a period,
he said.

Parties are still looking at new deals and lenders are fulfilling existing funding
obligations, he said. Klingbaum is currently representing a credit fund on a
new deal. The fund, like many other lenders, is still interested in the
transaction but wants the time to see how things will work out, he said.

Just like the rest of us.

Write to Luisa Beltran at luisa.beltran@dowjones.com

MORE FROM NEWS CORP

Buy Stocks Now, Investing Legend Burton Malkiel Says. Here’s What He Recommends. BARRON'S

Townhouse Neighboring Sarah Jessica Parker and Matthew Broderick’s Mega-Mansion Asks $34.5M
MANSION GLOBAL

READ NEXT
I’m retired and claim Social Security — do I still get the $1,200 stimulus check? MARKETWATCH
Workers Are Getting the Short End
of the Stick from the Cares Act

Bank of America profits slide as it stashes cash for downturn This

FINANCIAL NEWS Mortgage REIT Might Still
LONDON
Have Room to Rally, Analyst Says
Buy Stocks Now, Investing Legend
Burton Malkiel Says. Here’s What
Volkswagen Gives an Early Warning on Earnings. What That Means for U.S.
HeAuto Investors. BARRON'S
Recommends.

https://www.barrons.com/articles/cash-is-king-again-what-coronavirus-means-for-mergers-and-acquisitions-51584958500 2/2