Fusions & Acquisitions Magazine: Was 2020 a good year for M&A despite the surrounding uncertainty? What were the major operations supported by Lazard?
Isabelle Xoual: 2020 was a year like no other. We did not expect such a business volume.
Guillaume Molinier: Even if we have noted a decrease in the number of operations, especially in the segment of deals worth more than 500 million, the M&A market in France is likely to end at almost the same level as in 2019 and it will remain within the average of what we have experienced over the last 5-6 years.
Vincent Le Stradic: This year, entirely new operations were carried out with a lot of innovation. For example, in the Telecoms sector, 2020 saw the biggest LBO in history and it should be noted that this was a European operation. Another striking operation: even before becoming the definitive owner of an asset, an acquirer sold part of the target’s activities during the takeover itself. This is unheard of! And all this was achieved in just a few days.
Fusions & Acquisitions Magazine: What were the particularities of the operations related to Covid-19?
Guillaume Molinier: This year, some sectors have been particularly active, such as Telecoms, Tech, Pharmaceuticals and Renewable Energy. Those are the sectors that have resisted Covid-19 the best.
Another notable point is that usually most of our year business takes place in the first half of the year. But, in 2020, almost 100% of operations were carried out in the second half of the year. In the spring after the lockdown, investors realized that the crisis did not call into question business models and that all this was merely a long parenthesis.
Vincent Le Stradic: Covid-19 has generated deals. Of course, many deals did not go through because some companies saw their market capitalization divided by two. But reopening of bank financing – which had been closed for two months – quickly started initiating opportunities.
At the level of the bank, we first found ourselves in a situation where we did not know how to operate. But very quickly we realized that our job was totally feasible by teleworking. We made deals all over the world without leaving Paris. We were able to carry out exceptionally large operations worth several billion dollars without having to go on site. We even managed to get new mandates and win new clients.
Fusions & Acquisitions Magazine: Will you continue this new way of doing things in your job?
Isabelle Xoual: Obviously, we will go on doing several things remotely, especially in the operational part. But face-to-face contact remains crucial: part of our business, particularly in the negotiation area, can only be done in a face-to-face relationship with our clients.
Charles Andrez: What will work, is competition. When everybody is back visiting their clients, it will create movement.
Vincent Le Stradic: In my opinion, visiting clients will quickly be resumed in Parisian deals. Yet, classic international deals and large negotiation meetings, which were usually held in London, will probably be organized digitally, as we realized it was much more efficient. In our profession, ability to dematerialize is huge; it explains why the volume of deals did not ultimately decrease too much in 2020.
Fusions & Acquisitions Magazine: What about the prices of operations in 2020?
Isabelle Xoual: Prices have not fallen and in some areas, they have even increased. High-quality assets sell fast and at least as much as in 2019, if not more.
The multiples on some deals are higher than those recorded for the same operations in previous years. Specifically, we made an operation at over 20 times EBITDA in six weeks’ time. It should be noted though that prices have polarized. Quality assets, which are showing growth, sell at high multiples. In other more affected sectors, major restructuring can be expected.
Fusions & Acquisitions Magazine: Should we presume a wave of restructuring?
Vincent Le Stradic: This year, the number of bankruptcies was lower than in pre-Covid years, thanks to the public measures that were taken; but, when the liquidity taps close, there will be a wave of restructuring.
Isabelle Xoual: Some companies, which were already in difficulty before Covid-19, will have a hard time recovering in 2021. The resulting restructuring should generate new M&A operations.
Fusions & Acquisitions Magazine: What about the private equity market?
Charles Andrez: In March, the private equity market collapsed. But despite the drop, and unlike what happened in 2008, private equity was a strong market driver in 2020, with half the volume in Telecoms and infrastructure sectors.
Isabelle Xoual: Today, financing is raised very easily under conditions that are still optimized, and private equity funds still have a lot of money to invest. Processes on quality assets are pre-empted even before they are launched.
Guillaume Molinier: Another significant trend affecting private equity is disintermediation and continuation funds, which allow investors to reinvest in an asset that they know perfectly well, in an environment where the right assets to invest are increasingly scarce.
Fusions & Acquisitions Magazine: What was the place of cross-border deals in 2020?
Guillaume Molinier: More than 60% of deals were cross-borders, including ¾ made by French companies abroad, particularly in the United States that play an important role in acquisitions.
Fusions & Acquisitions Magazine: What were the new transaction parameters that had to be considered in 2020?
Vincent Le Stradic: I would like to point out the obsolescence of the definition of antitrust. In some sectors, we observe such a disruption of the market that it is impossible not to reckon on the new players. The market definition, as it is defined by the French or European antitrust, deserves to be reviewed because the faster the economic cycles of innovation are, the more operative the analysis grids must be.
Another interesting phenomenon, but not a new one, is that in all deals on listed companies, we must integrate a dialogue – constructive or not – with the hedge funds. As generalist bankers, we need the full range of skills to know how to handle them.
Fusions & Acquisitions Magazine: How did activists behave during the Covid-19 period?
Isabelle Xoual: Covid-19 has somewhat frozen their operations because their portfolios have been impacted, too. This does not mean that they will not resume activism in a context where some companies, which suffered in terms of valuations, have become more vulnerable. No company is any longer protected from such movement when the minority shareholder’s interest is not properly protected.
Vincent Le Stradic: The face of activism has changed. We have recently seen a non-activist, a recognized entrepreneur, become a shareholder, oppose management and win. This is an important turning point.
Isabelle Xoual: Some of our clients note that management today needs to be more proactive for managing their group. We can even say that to better prepare, management must become its own activist.
With no taboo, all management teams and general directions will have to conduct a review of strengths and weaknesses within their group, as to best address problems and assimilate the fact that there are stronger societal expectations with Covid-19. Being prepared makes it possible to better defend oneself and to convince on a long-term strategy, knowing that an activist is generally there only for a short period of time, from 12 to 18 months. Such an approach should help prevent an attack.
Fusions & Acquisitions Magazine: Were you ready for this crisis?
Isabelle Xoual: We realized that we were ready. The teams worked seamlessly and were much involved, even at a distance. We are generalists and the fact of being exposed to quite different situations, has given us high agility towards our clients. Our job is even more interesting than it was 5 or 6 years ago.
Vincent Le Stradic: The hours worked were more productive, as movement was limited. The hourly productivity in our job has significantly increased during the Covid-19 period. We glowed on “weird stuff” and this has generated a lot of innovation. So, over a few months, it has not been a problem; but in the long run, it is not beneficial.
Charles Andrez: We had the advantage with our strong franchise to already have a large pool of clients onboard us. However, in terms of private equity, the new business proved more complicated. But after the first lockdown, we went through a hyper-active period with new mandates and new clients. We really took advantage of that time between the two lockdowns.
Guillaume Molinier: By necessity, we had to show a lot of creativity in 2020, be hyper-agile and hyper-flexible, not only in terms of our own management, but above all towards our clients. The ongoing dialogue with them – especially when business was shut down – has ultimately generated deals.
This difficult period has highlighted the relevance of the model of institutions such as Lazard, which provide pure advisory. We can help our clients during times of uncertainty or low visibility by being very imaginative.
Fusions & Acquisitions Magazine: What do you think are the main trends for 2021?
Charles Andrez: Telecoms, Health, Digital, FIG and Renewable Energy will continue to be the most active sectors in 2021.
In 2020, only companies with robust characteristics were subject to M&A operations. As a result, the multiples of operations observed over the year were high. In 2021, as soon as the deal-flow is back to normal, less exceptional companies will again be prone to operations, thus the average of the multiples observed will decrease.
Guillaume Molinier: Yet, in the medium term, the effects induced by Covid-19 on the debt of States, that of households, and a possible surge of layoffs, may impact our clients’ business models and their M&A activity.
Fusions & Acquisitions Magazine: Can we still be optimistic for 2021?
Guillaume Molinier: Today, investors are present on the stock markets; debt markets are here, currency movements are not too many, and Brexit has been relatively well integrated by all operators. There is a slight uncertainty about exchange rates, which are historically low and could rise again.
Isabelle Xoual: Today, our clients rely a lot on growth. In making their acquisitions, they seek innovation, new market shares or new markets. It is certain that in 2021 we will have to remain highly creative, even if “classic” M&A is back.
Charles Andrez: Private equity should be highly active again. This market is in a state of flux and constant change.
Vincent Le Stradic: There was an extraordinary response to this crisis. Without the experience of the 2008 crisis, we would not have been able to react in Europe so fast; the entire technical arsenal was ready for use. We are surely going to have a series of restructurings when the liquidity taps close, but luckily, the French arsenal for handling companies’ distress is well organized currently and we will be able to cope.