The coronavirus pandemic has M&A market has changed dramatically, with asset deals playing a more prominent role. Asset transactions offer buyers greater flexibility and risk management in uncertain times, while sellers can divest strategically valuable business units. This shift has led to new valuation methods, modified contract structures and sector-specific trends that will continue to influence the future of mergers and acquisitions.
What are asset deals and how do they differ from other types of acquisitions?
Asset deals are transactions in which buyers acquire specific business units rather than the entire company. In an activation transaction the buyer consciously selects which assets are to be acquired: customer portfolio, stock, machinery, intellectual property or personnel. This differs fundamentally from share transactions, in which the entire company changes ownership.
The main difference lies in selectivity and risk management. In share deals, the buyer takes over all assets and liabilities, including hidden obligations. Asset deals, on the other hand, offer the possibility of acquiring only valuable parts and leaving problematic elements with the seller.
For buyers, this means a step-up to market value with depreciation options, including goodwill. Sellers pay full tax on the profit, while buyers are liable for transfer tax on real estate. This structure is mainly used for carve-outs and situations where a selective acquisition is desired.
How has the coronavirus crisis affected the valuation of business units?
COVID-19 has valuation methods for business units fundamentally changed due to increased uncertainty and volatility. Traditional valuation models became less reliable due to sudden declines in turnover and disrupted business operations. Due diligence processes became more intensive, with an additional focus on cash flow stability and the future-proofing of specific business units.
Valuations became more conservative due to increased risk aversion. Buyers applied higher discount rates and shorter forecast horizons. Earn-out structures became more popular to bridge valuation differences, with future performance determining the final purchase price.
The pandemic reinforced the importance of digitalisation and resilience as value drivers. Business units with a strong online presence, automated processes or essential services retained their value better. In contrast, physical assets and location-dependent units were assessed more critically in terms of their future prospects.
Which sectors saw more asset deals during the pandemic?
The technology, healthcare and e-commerce sectors experienced a increase in asset deals during the coronavirus pandemic. These sectors benefited from accelerated digitalisation and changing consumer behaviour. Buyers selectively acquired digital platforms, logistics capacity and health-related technologies to strengthen their market position.
The healthcare sector saw increased interest in specific medical technologies, telehealth platforms, and pharmaceutical product lines. E-commerce companies were dismantled for valuable components such as fulfilment centres, customer databases, and technological infrastructure.
The hospitality, retail and entertainment sectors, on the other hand, experienced less asset deal activity. These sectors faced structural challenges and uncertain future prospects. When transactions did take place, buyers focused on specific brands, locations or technological assets with repositioning potential outside the original sector.
Why did buyers opt for asset deals rather than complete takeovers more often during the coronavirus pandemic?
Buyers preferred asset deals because of risk management and capital efficiency during the pandemic. This structure minimised exposure to unknown liabilities and coronavirus-related claims. Selective acquisitions required less capital and offered flexibility to respond quickly to market changes.
Strategic considerations played a crucial role. Companies focused on core activities and acquired only assets that directly contributed to their strategic objectives. This resulted in more efficient integrations and faster realisation of synergies.
Financing considerations reinforced this preference. Banks and investors were more cautious about financing complete acquisitions, but showed greater willingness to make targeted asset acquisitions with a clear business case and limited risk profiles.
How have the legal and financial aspects of asset deals changed?
Contract structures became more extensive with coronavirus-specific clauses and warranty provisions. Material Adverse Change clauses were redefined to explicitly address pandemic effects. Sellers had to provide more extensive warranties regarding the impact of COVID-19 on the assets to be acquired.
Due diligence processes became more intensive and time-consuming. Buyers demanded a detailed analysis of the impact of COVID-19 on operational performance, contractual obligations and personnel matters. Virtual due diligence became standard, with adapted procedures for asset inspection and validation.
Pricing mechanisms became more flexible due to increased uncertainty. Locked box constructions lost popularity in favour of closing accounts and earn-out structures. Working capital normalisations became more complex due to COVID-19-related fluctuations in business operations and cash flow patterns.
What are the long-term effects of coronavirus on the asset deal market?
The pandemic has permanent changes brought about in transaction structures and asset selection criteria. Digital transformation and operational resilience have become permanent value drivers. Buyers are systematically applying stricter criteria for the future-proofing and adaptability of business units.
Virtual due diligence and digital transaction processes have been standardised. This has led to more efficient processes and a broader geographical reach for asset deals. At the same time, risk assessments have become more sophisticated, with specific attention to supply chain resilience and scenario planning.
The market has adapted to a new reality in which flexibility and selectivity are key. Asset deals have come to play a structurally more important role in corporate development strategies. This trend is reinforced by an increased focus on ESG criteria and sustainability as selection factors for asset acquisitions.
Corona has permanently changed the M&A market, with asset deals becoming a strategic tool for risk management and value creation. For entrepreneurs considering divesting or acquiring business units, professional guidance is essential to achieve optimal structures. Take contact for specialist support with your asset transaction.
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