Pandemic Brings Uncertain Prognosis for Business

Corporate lawyers see early symptoms in M&A, investment appetite

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The number of confirmed COVID-19 cases in the U.S. has soared past 13,000, with the figure approaching 255,000 globally. The death toll from the disease totaled 10,500 around the world as of Friday.

The coronavirus has also infected the global economy, though the seriousness of the U.S. prognosis varies. Goldman Sachs has predicted the country’s economy will shrink by 5% in Q2, while Deutsche Bank forecast a 12.9% contraction for the same period. At least a few top banks and economists have said a recession is already here.

Law Week talked to Sherman & Howard member Lyle Wallace and Holland & Hart partner James Crowe about the early symptoms they’re seeing from the pandemic’s business impact and what remedies companies can take to protect their bottom lines.


When it comes to mergers and acquisitions, buyers are already “hitting the pause button,” said Wallace. In the past three weeks, he’s seen buyers tell clients on the sell side they need to stop the negotiation process and wait 60 days, then decide how to move forward from there. 

Wallace said he expects to see a lot more buyers reconsidering acquisitions over the next two to three months.

Crowe said that while there may still be some appetite for acquisition on the growth equity and middle-market private equity side, until there is some market stabilization and flattening of the coronavirus curve, “you’re going to be hard-pressed to see a lot of large companies, or even medium-sized companies, that are going to be really acquisitive at this point.”

Investors are also taking a wait-and-see approach. “I have a number of investors who are what you would consider angel investors,” Wallace said. “And they have ratcheted back their investment appetite, and even in reviewing potential investment opportunities, because they want to sit on cash for the time being.”

The outlook varies from sector to sector, with some harder hit than others. “For the most part, with very limited exception, if you were doing deals in the oil and gas space… I think you’re seeing a real pullback in [capital expenditures] and expenditures in that space,” Crowe said. 

According to Wallace, the health and wellness industry has recently seen a number of rollups — a process in which several smaller businesses in the same industry are acquired and merged. But with fitness centers and massage studios among the businesses ordered to close in cities across the country, he said, “I think you’re going to see a stop on those acquisitions.” 


While the coronavirus pandemic has taken the world by surprise, speculation about the U.S. entering a recession, or at least a slowdown, was swirling long before anyone had uttered the word “COVID-19.” 

Were companies already braced to weather a financial storm?

Wallace said he’d seen some anticipation of a slowdown among clients, a number of whom were opting to sit on cash rather than buying large pieces of equipment or making investments. But it’s not enough cash to cover 60 or 90 days of expenses and payroll without revenue coming in. 

While some people might have been anxious about an economic downturn before the pandemic struck, Crowe said, “I don’t know any lawyers that are practicing that have seen this type of confluence of events.”

So, what should businesses and their legal teams be thinking about given the unexpected — and in many ways unprecedented — turn of events? 

Work-from-home arrangements offer an obvious remedy to keep revenue flowing for certain industries, especially in technology, business-to-business and certain professional services. But it doesn’t work for every company or client.

Finding ways to convert assets to cash is another way companies can create cash flow when times are tight, Wallace said. 

Additionally, he said clients are already being proactive in working with their banks to increase their borrowing in the short term or to request a forbearance if they’ve already defaulted.

Companies will also want to start thinking about their force majeure clauses in commercial contracts in the event they have to suspend service, Crowe said. 


“Honestly, and this may sound weird coming from an M&A guy, but I think the most important thing right now is to be watching out for your people,” Crowe said. 

“Making sure that people are taking the appropriate precautions is as important as anything you can be doing right now, because the fastest way to get people back to doing deals and finance is to get everybody healthy.”

But paying those people tends to be one of the top expenses for any company. Given how difficult it is to predict how long the pandemic or its economic effects will last, businesses will face tough choices in whether, and when, to cut staff.

“You don’t want to lay off employees too quickly,” Wallace said. “But that’s going to be one of the most significant or easiest levers to pull in order for companies to address their finances.”  A lot of companies have already started to pull that lever. In a mid-March Marist poll of more than 800 U.S. adults, 18% said they or someone in their household had already been laid off or had their hours cut due to the coronavirus outbreak. The Denver Post reported last week that attempts to file for unemployment jumped to 6,800 on March 17, compared to only 400 a week before.

“It will be interesting to see — and I don’t know without a crystal ball — how long it’s going to last and how quickly corporate clients are going to use their labor force to address their costs,” Wallace said.

— Jessica Folker

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