Deloitte: Opportunistic M&A before crisis ends

Well-invested brands still have the chance of emerging from the coronavirus crisis in a stronger position, Deloitte director Ed Jenkins has told MCA.

Jenkins, who oversees travel, hospitality and leisure corporate finance, said a three to six-month hit to finances could be overcome in the three-five year investment cycle of most private equity deals.

He said PE-backed brands were getting ample support from their investors, with investment directors coming and working closely with FDs to agree cash flows.

Meanwhile Jenkins said there would likely be an appetite for M&A activity once a clearer picture emerged of when the crisis will be over.

Jenkins told MCA: “A six months hit is damaging, but if you look in terms of the three-five year investment horizon, many operators should be able to come out this on the other side in a better position if they continue to have the support of their investors.

“The private equity community has been very positive about the way they deal with this.

“They are in crisis management, and one of their roles is when things go bad, to come in and try and support the businesses.

“It’s very much hands on, though not in an interfering way. Everyone I speak to has been very positive of the efforts they’re making to keep them afloat.

On potential M&A activity, Jenkins added: “I think we could see opportunistic funds starting to make acquisitions before this is over. There is no doubt there will be some casualties but you could also see a rationale for mergers between brands before this is over to give businesses the greatest chance of survival through a reduction in cost bases and operational efficiencies.

“At the moment though, there’s no visibility of where this might end, so it’s an unquantifiable risk to invest at this point”

“As soon as you can see some light at the end of the tunnel, that’s when operators and PE houses might make their move.”