A consolidation is an option for companies that are affected positively or negatively in exceptional circumstances
Local markets identified the first wave of the affected sectors and wait for the second wave
The meeting “Evaluating Investment Opportunities in Crises”, organized by the Asharqia Chamber represented by the Center for Remote Small and Medium Enterprises Development (Sunday 5/17/2020), stressed that the present time is an important opportunity for mergers and acquisitions, whether among the pioneering individuals, or the existing companies, within A fair evaluation mechanism, a detailed legal framework that guarantees partner rights and feasibility of the new entity.
The meeting, which was managed by the executive partner of focusing Management Consulting Company Naif Al-Mulhem, witnessed a review of the evaluation methods available in general, which are reliable at the present time, and the impact of this on the merger option.
Financial and strategic specialist Jassim Al-Haroun said that mergers and acquisitions are two ways to develop activities and the emergence of strong entities. The merger means that two companies disappear with each other and result in a different third company, while the acquisition is the disappearance of a company within a company larger than them, and in both cases, the output should be a different capable entity to compete more.
He believes that the present time represents a valuable opportunity to achieve more mergers and acquisitions, especially since all expectations indicate a different situation after the crisis, as well as this option, maybe the best for some companies, which can exit from the market, or that live in a difficult situation, as well. It is a positive choice for forming entities among the companies that were positively affected by the crisis.
He stressed the need to develop the values of integration and activate partnerships, according to legal foundations that guarantee the rights of all parties, and ensure better performance of the new entity.
Regarding the companies ’evaluation of their merger or acquisition, he said that this is based on a general rule that depends on differentiating between value and price. A person may have an old picture when this image is evaluated by him, his value is different from that of others who do not see it other than it is a piece of paper, and the price It is what is agreed upon between the seller and the buyer, it may be less than the real value of the commodity, it may be more, and it may be appropriate, therefore there are different views on the evaluation according to which the price is determined.
He stated that all the evaluation methods directed to companies depend on that each company is a tool for generating revenues, some companies achieve this by selling certain assets such as real estate companies, and through the value of shares, or through returns and profits, so here are three methods of evaluation (liquidation, market, And earnings), all of which are done based on the evaluation of specialized people, especially since we have a specific body in this regard.
For this part, Qais Al-Essa, co-founder and CEO, Vision Ventures, said that the merger in order for it to be feasible for us to know the motivation behind it, as it must happen a consensus between two or more companies and result in a competitive entity, and better than before in the absence of the merger.
He added that our market is scarce with mergers, while what is required is to increase, especially at the present time, pointing to the need to provide detailed legal frameworks for the merger project, in order to guarantee the rights of all parties.
He said that the basis for evaluating companies eligible for the merger is different for existing companies than for startups. The first can be evaluated in traditional ways such as the value of assets, cash flows, and the like, unlike startups that need other methods, especially as a startup is Its financial flows are not clear and its returns are not known. Therefore, the evaluation should be based on the future expectations of this company, on the basis of comparison with competing companies, and so on.
On the evaluation in times of crises and exceptional circumstances – such as we are in it – Al-Essa said that the different circumstances affect the markets in one way or another, as there are active sectors and their performance is better (such as health, retail, e-commerce … etc.), and there are sectors that have regressed (The travel and tourism sector, for example), and sectors in an average position. Hence, the affected companies must accept low valuations, unlike the ones that have recovered. Their value differs from their negative affected counterparts, and all these sectors are suitable to be included in the merger project.
He pointed out that we saw the first wave of sectors that were affected negatively and positively by the pandemic, so we have to look at the second wave, according to which the companies affected are negatively and positively evaluated, and we study our options in the merger, which remains an important option all the time.
Source: Asharqia Chamber