Test-driving a car is one way to help decide whether to purchase it, but there is no way to truly know how it performs until some miles are put on it. It’s the same as falling in love with a potential new home, but only after moving are the real charms of the home apparent—as well as the creaks.

Such is the case in acquiring a company. The due diligence has been performed, the board sees a strategic fit, and the deal has closed. But now what? Has the groundwork truly been laid for a match that will bring growth and competitive differentiation for years to come?

While M&A activity in the first quarter of 2020 as COVID-19 hammered the global economy, a suggests that deals won’t come to a complete standstill as lower share prices and the desire for many companies to restructure creates new opportunities. A top Goldman Sachs executive has even predicted a revival in activity “in a reasonable period of time.”

Despite the current uncertainty, there is never a bad time for business leaders to be thinking about the right approaches to an acquisition and the mistakes to avoid. Mergers and acquisitions are exciting, but when the honeymoon period is over, a deal’s success or failure can hinge on considering, understanding, and addressing certain key factors.

The following are four key questions that teams at acquiring companies should consider:

1. WHAT TO ACTUALLY DO WITH IT?
Companies engage in acquisitions to grow market share, expand into new markets, or gain new technologies and capabilities much more rapidly than organically doing so in-house. But to truly assess strategic fit, an acquiring company must dig deeper and develop a highly detailed view that addresses the question, “What exactly would we do with this company?” It’s essential to be buttoned up on the business reasons for the acquisition and the precise value it can be expected to bring in a year, two years, or five years.

These evaluations should be built into the financial models that are presented to the board. Because it’s initially hard to size up an acquisition target from afar, this usually starts as a hypothesis built on the best available data. Then it can be refined through due diligence for a more specific view before the deal moves to signing. The iterating should continue even after the acquisition closes, since it’s hard to tell what’s been purchased until the deal is actually done.

2. WHAT MAKES THE TWO COMPANIES TICK?
One of the principal challenges with M&A is combining two organizations that are usually geared toward different outcomes. For example, mature companies are optimized for predictable shareholder return and profitability while growth companies are optimized to invest in growth, capture market share, and scale new business models.

Another way, companies have sets of priorities, capabilities, and ways of thinking and making decisions that make them successful in their space. The company usually optimizes around these. If a company is pursuing complex sales, it will do what it takes to become more efficient and effective at that. If the company is integrated into one that is all about transaction velocity, a disconnect could result.

When companies march to different drummers in this way, there inevitably will be challenges. That doesn’t mean the difference will necessarily kill a deal, but understanding and planning for such discrepancies early on need to occur or it will be difficult to realize the desired post-acquisition value. Make sure the combined companies are optimized in the same ways.

3. DO COMPANY CULTURES ALIGN?
At the centre of every merger are the people. Bringing people together is imperative. The larger elements of a deal can be discussed ad nauseam—the market, products, intellectual property, etc.—but cultural differences are often where acquisitions end up falling flat.

It’s critical to take this into account throughout—during due diligence, during the planning between signing and closing, and during planning and execution after closing—and identify approaches to mesh the cultures.

Where many people drop the ball on both sides of the deal is (1) failing to be open, listening, and understanding, (2) taking shortcuts because of pressure to move fast, and (3) not creating incentives to drive cultural alignment.

Sometimes, acquiring companies fall into one of two extremes: a one-size-fits-all approach (“this is how it will be done”) or a hands-off approach (“don’t touch them”).

The best route is somewhere in the middle: a deep understanding and appreciation of the best aspects of both companies’ cultures and plotting out ways for the new whole to be greater than the sum of its parts.

4. WHAT DOES SUCCESS LOOK LIKE?
It seems a cliché to say that every deal is different and therefore the measures of success also differ. However, that’s the case: There is no standard template. Instead, look to key measures that address: (1) to what extent the acquisition achieves strategic objective (and better than alternatives) and (2) does it deliver a financial case (also better than alternatives).

By defining a specific and select set of measures up front and using those to set priorities and targets, companies can drive alignment and stay focused on the right integration actions rather than spinning wheels.
By adhering to these four guidelines, companies can take more of the guesswork out of acquisitions and benefit from well-integrated mergers that grow the business.

Package refers a draft law to pay private sector salaries, and pay utility bills for individuals, businesses for three months

The government of Bahrain has announced an $11.4bn (BHD4.3bn) stimulus package to support the country’s citizens and private sector and counter the economic impact of the coronavirus outbreak (COVID-19).

Bahrain ministers issued the unprecedented policy to directly support citizens, residents, and businesses in the kingdom during a press conference in the capital city of Manama.

The $11.4bn (BHD4.3bn) stimulus package is equivalent to 29.6% of Bahrain’s annual GDP, and covers an eight-point strategic commitment by the government.

Bahrain has referred a draft law concerned with paying the salaries of all private sector employees for three months from April 2020 from the unemployment fund, following constitutional procedures – a move that is in line with the social insurance law.

The package also aims to pay the utility bills issued by the Electricity and Water Authority for individuals and businesses for three months from April 2020, up to the costs incurred during the same period in 2019.

Bahrain will also restructure administrative costs to offset additional costs incurred by the government.

The initiative will exempt all individuals and businesses from municipal fees for three months from April 2020; exempt all businesses from industrial land rental fees for three months from April 2020; and exempt all tourism-related industry from tourism levies for three months from April 2020.

The stimulus package will also double the Liquidity Support Fund to $530m (BHD200m), according to the state-run Bahrain News Agency.

The Central Bank of Bahrain’s loan facilities will be increased to $9.8bn (BHD3.7bn) to allow debt instalments to be deferred and extra credit to be extended

In addition, all programmes by Tamkeen – a semi-autonomous government agency that provides loans and assistance to businesses – will be redirected to support adversely affected companies, as well as toward restructuring all debts issued by entity.

In common with most other nations, Bahrain is affected by COVID-19, but has taken swift and decisive action to try to minimise the impact on our people and the business community.

Bahrain’s response

Bahrain has set up a dedicated National Taskforce to tackle the spread of the virus and took measures to ensure that testing and quarantine facilities were set up without delay. The Kingdom has one of the highest testing rates per capita in the world, garnering the recognition of the World Health Organization for its agile response. Bahrain was also the first Arab country to join the Solidarity Trial to find effective treatment for the virus. The Kingdom stands ready to take further steps to ensure that the virus does not spread. Bahrain is also:

• Providing free treatment to citizens and residents.
• Providing mobile medical units to examine people in their homes.
• Allowing all working mothers to work from home.
• Suspending public and private schooling as well as higher education institutions until further notice.
• Televising educational sessions through the Ministry of Education.
• Suspending fingerprint attendance systems in government institutions.
• Granting paid medical leave for a period of 14 days to passengers arriving from affected countries.
• Assembling a volunteer task-force of over thirty thousand individuals.

Economic stimulus package

As part of the response, the government of Bahrain is supporting individuals and companies through a comprehensive US$11.4bn economic stimulus package.

The measures, which will come into effect once it gets approved in parliament and last for up to six months, include extending Bahrain’s liquidity fund initiative, interest rate reductions, loan restructuring and salary support, rent decreases, and grants and utility relief for businesses.

Bahrain’s economic stimulus package – The key points:

The payment of all insured Bahraini private sector employees for three months starting April 2020 from the Unemployment Fund, following constitutional procedures and in line with the Social Insurance Law. Please contact the Social Insurance Organization for further information.

The automatic payment of individuals’ and businesses’ Electricity and Water Authority utility bills for three months from April 2020 (up to the costs incurred during the same period in 2019), whilst also restructuring government administrative costs to offset additional costs incurred by the government.

Exempting all individuals and businesses from municipal fees for three months from April 2020. More information can be obtained from the Ministry of Works, Municipalities Affairs and Urban Planning.

Exempting all businesses from government-owned industrial land rental fees for three months from April 2020. Kindly contact the Ministry of Industry, Commerce and Tourism for more information.

Exempting all tourism-related industry from tourism levies for three months from April 2020.

Terminating monthly work fees and fees for issuing and renewing work permits for three months from April 2020. For more information, kindly contact the Labour Market Regulatory Authority (LMRA).

Doubling the Liquidity Support Fund to US$530m.

Increasing the Central Bank of Bahrain’s loan facilities to US$9.8bn to allow debt instalments to be deferred and extra credit to be extended. More information on the application process can be found here.

The redirection of all Tamkeen programmes (semi-autonomous government agency that provides loans and assistance to businesses) to support adversely affected companies, as well as the restructuring of all debts issued by Tamkeen.

By extending these initiatives to those most affected, the Kingdom hopes to minimise the impact on residents, citizens and our business community.

Here at EDB, we continue to work closely with the business community to track developments day-by-day. Our colleagues will be reachable by phone or email throughout this challenging time.

Travel guidance

The authorities at Bahrain International Airport may conduct medical tests on passengers arriving from any of the affected areas if the Kingdom of Bahrain is their final destination. Passengers must comply with such tests and procedures such as filling health declaration forms and screening processes.

Passengers who have been in China, Iran, Iraq or South Korea at any point within 14 days of their arrival into the Kingdom of Bahrain will be denied entry into the Kingdom with the exceptions of:

• Bahraini citizens
• Permanent residents of Bahrain
• Citizens of GCC countries
• Passengers with Prior Permission Granted (This needs to be presented prior to boarding)

The exceptions will be required to undergo medical examinations recommended by the World Health Organisation (WHO).

On-arrival visas have also been suspended until further notice. Please visit the Nationality, Passport & Residence Affairs website for more travel updates.

As the situation develops, we will continue taking international guidance on the best way to manage the crisis and to ensure business continuity.

COVID-19 and your business

As well as activating your business continuity plans and assessing operational risks posed by the potential spread of COVID-19, consider the following tips:

Keep up to date: Check the official Bahrain Ministry of Health page to receive the latest confirmed information.

Offer advice to employees: Make colleagues aware of the official information from the Ministry of Health (see above) and implement enhanced cleaning protocols as well as remote working systems when necessary.

Consider travel arrangements: Contact your airline to verify that flights are running and check the latest guidelines before travelling. Those who have been to certain high-risk countries may not be able to enter Bahrain, or could be subject to quarantine.

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• Oil prices are experiencing one of the sharpest downturns in history as a lack of storage capacity becomes a key constraint.
• We expect a modest recovery in oil prices if agreed global supply cuts are effective and end-user oil demand starts a recovery, helping work off the oil inventory glut.
• What we are keeping an eye out for: Any additional measures from OPEC+ or the US, speed of economy re-openings and evidence of global oil demand recovering.

What are the reasons and implications of the oil price collapse?

• WTI crude oil prices (measured by the active month contract) plunged into negative territory last week. The root of the problem is likely a lack of storage capacity, exacerbated by technical factors such as lower market liquidity. At the time of writing, the quoted WTI oil price is currently at USD 11.75/bbl while Brent oil is at USD 19.45/bbl
• The move lower in oil prices has also dragged the market’s inflation expectations lower, raising fears the fall in oil prices could exacerbate a ‘deflationary’ shock. However, unprecedented fiscal and monetary easing as well as our expectations of a gradual recovery in oil prices should help mitigate this.

What is your view on oil prices from here?

• We expect WTI crude oil prices to stabilise over the next 3 months as agreed OPEC+ production cuts and the start of a demand recovery alleviate the global supply glut.
• Over the next 6-12 months, our expectations are for a gradual recovery in the WTI oil price to a range around USD 45/bbl.
• Technical watch: There is strong support for WTI crude at the 1986 low of 9.75, which on a weekly basis continues to hold.

What must happen for your view to pan out?

• First, we would need to see a recovery in oil product demand in end-user markets (i.e. motorists, airlines) over the coming weeks as economies gradually re-open. This is likely to be accompanied by a downward adjustment in non-OPEC supply as production falls due to financial and storage constraints.
• Second, oil inventories would need to normalise. Refiners will likely draw down current inventory first before resuming their normal pace of buying.
• The key risks to our view include (i) weak compliance with the OPEC+ output cut agreement and (ii) a slower-than-expected recovery in global oil demand later this year.