Actionable Ideas for Companies and Sponsors
Mergers of Equals Will Increase in the Current Economic Environment
We believe there will be a significant increase in Mergers-of-Equals (MoEs) transactions that will emerge from the current challenged economic environment. MoEs present numerous advantages to cash acquisitions and can be effected with both the public and private companies. Specifically, MoEs minimize the disadvantage and stigma of transacting at lower values, premiums or multiples, as the relevant measure of value is the proportionate value distribution between the shareholders of both companies. In addition, in the current economic environment, scale has become only more critical, as the impact of the COVID-19 pandemic has cast a harsh spotlight on sub-scale enterprises. Perhaps one of the most important benefits of MoEs is the potential to strategically reposition a company in one meaningful transaction, since MoEs by definition are transactions of strategic magnitude. Further, with the expectation of challenging economic conditions, MoEs provide an attractive opportunity to accelerate earnings growth through the execution of synergies during a time when earnings through topline growth may be challenged.