Mergers and acquisitions (M&As) and joint ventures (JVs) are expected to continue over the next 12 months, but some changes to usual due diligence process might be needed.
In a Mines and Money-hosted webinar and panel discussion on September 2, Harvey Law Group foreign registered lawyer Amelia Polisana said that in spite of the Covid-19 pandemic, “there has not actually been a downturn” in M&A and JV activity.
Instead, these have steadily continued over the last six months as mining companies continued considering new opportunities to either merge or enter into a JV in order to “take advantage of the situation and to [either] develop, take over or diversify risks”.
While there have been changes across all industries, both in mining and others, she noted there have been different changes. In mining, specifically, there has been a “great expansion”, compared with other sectors that have slowed down.
She expected that, over the next 12 months, the global mining industry was likely to continue taking advantage of situations by joining forces in efforts to include certain aspects in their business, like technologies or other resources. Therefore, Polisana noted that businesses “are viewing M&As or JVs as a great opportunity to get together with another company and use what they have got in their strengths” to their advantage or for long-term sustainability.
For Pala Investments VP and senior legal counsel Kate Southwell, the trend in stable and continuous M&A and JV activity recently has “been at the forefront” for all companies, particularly given the uncertainty and volatility that is “almost inevitable” in the year ahead.
Southwell pointed out that M&A and JV activity was not limited to the gold sector, which had been supported by strong price increase, and that rising metal prices have brought in a lot of interest in the generalist sector, “which can only be a good thing”.
However, on the flip side, she warned of some headwinds being “almost inevitable” and that, despite deal-making having continued, these deals were concluded without the same level of due diligence as under normal conditions.
While some may have done their due diligence prior to the pandemic, others are now making use of creative technologies, like drones, to complete this aspect of the deal.
However, Southwell said this was likely to lead to more conservative deal-making and additional legal protections for indemnities and warranties.
This will be as a result of shareholders increasingly being focused on prudent capital allocation and making sure that deals are done for the right reasons, and the right prices, with adequate legal protections.
“Looking ahead, we may look at second or third waves [of the virus], as well as increasing uncertainty and volatility,” she noted, adding that force majeures and material adverse changes would remain important topics of discussion when considering deal-making over the next 12 months.
There would also be a rise in investment scrutiny by various countries, which may lead to increased changes in foreign direct investment laws, which Southwell warned “are bound to impact potential deal-making in the sector”.