LIFE after Covid-19 will not be the same, especially for the corporate sector; an enormous change is expected, from what we know now.
Currently, big corporations are in awe, as they have let much of their staff work from home, saving exponentially high costs of office including building rents, transportation, utilities, staff meals, etc., while smaller companies are suffering much during the lockdowns as their fixed and variable costs are still high despite declines in revenues, remaining opportunities for mergers and acquisition (M&As) afloat in a sea of the financial crisis.
The pandemic list of businesses that have been significantly impacted and the several lockdowns include hotels, restaurants, TV and film, construction, sports, fitness sector, crude oil industry, travel industry, sex workers, and most importantly, Aviation.
According to Forbes, nine airlines, being a part of the worst-hit sector, have applied for bankruptcy, including Flybe, Ravn Airlines, Compass Airlines, Trans States, Virgin Australia, South African, Air Mauritius, Avianca Airlines, and Thai Airways.
The most affected companies worldwide are looking for the option to either scale down their operation or a similar business entity to join their forces and remain viable.
Talking about Pakistan in particular, though the aforementioned ones are scarcely relevant, many sectors have been equally affected by COVID-19 and lockdowns. Such industries are banks, textile, automobile assemblers, insurance, cement, power generation, fertilizer, food, engineering, and fast-moving consumer goods (FMCGs), pharmaceutical, and sugar industries.
Due to lockdown, many small and medium enterprises (SMEs) have partially shut down their operations for good, some of them have also downsized their workforce. Even larger companies also find alternative ways to finance their operating costs, remain viable, and competitive.
In such circumstances, is M&As the only way out?
Khalid Mirza, former chairman of the Securities and Exchange Commission, said, “There is always the possibility of M&As in times of disaster.”
When two enterprises join hands and restructure into a new entity, it becomes easier for them to continue their operations successfully; one of the best things about the M&A world is the easy and quick availability of cash. With enough money on their balance sheets, entities, of any sector, help them find the right acquisition targets at the right price.
Tariq Iqbal, former chairman of National Investment Trust, also favored M & A activities to deal with the demand compression amid a crisis like Covid-19.
He said that at the moment, our purchasing power is compromised and people are more into saving than spending, due to which the demand is falling, forcing companies to either scale down their production, sell at lower margins or seek a similar business to join hands and remain in the market.
Mr. Khan said that while big corporations with maximum cash should look for acquisition options, following the provisions of the Takeover Law 2002 and seeking the Competition Commission of Pakistan with disclosures. Make sure that the M&A activity should not result in a monopoly.
Companies intending to go into M&A or joint ventures (JVs) must apply for clearance from the Competition Commission of Pakistan of the Competition Act of 2010.
Khurram Shahzad, CEO of Alpha Beta Core, also concurred the same suggestion of picking up the pace of M&As in the midst of an economic and financial crisis. According to him, mergers and acquisitions are best to beat the competition, especially when assets are available at cheap valuations. He also shared how many companies diversified. Being in the line of the new normal- like ride-sharing services- ventured into food delivery. Many retailers introduced their e-com store to others in online shopping.
Interestingly, while some industries busy managing their piled-up staggering losses, technology, and related companies are making numbers during the pandemic.
Mr. Shahzad said that five technology and related stocks, including Facebook, Apple, Google, Microsoft, and Amazon, command 20 percent market capitalization in the S&P 500 Index.
Most of them have thrived, thanks to the increasing demand for entertainment, socializing, videoconferencing, and work-from-home needs.
Incidentally, three major technology stocks – TRG Pakistan Ltd, Netsol Technologies, and Avanceon Ltd – listed on the Pakistan Stock Exchange (PSX) hit their upper circuits on the first day of trading right after the Eid holidays.
Bushra Naz Malik, a member of the commission for M&A and information technology, shared that in the last two weeks, the CCP gave clearance to nine mergers; since its inception in 2007, the CCP cleared 780 M&As and JVs.
She said, “To ensure that the commission continues to perform its statutory functions amid Covid-19, the regulator has explored various online avenues.”
To facilitate foreign and local investors who are interested in investing in Pakistan’s’ JVs and M&As, in May, the commission had launched an online system for processing merger applications, complaint filings, and even for conducting online hearings; according to Ms. Malik said, the body had started accepting pre-merger applications online, and a couple of them are already on the table.