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PJ Solomon CEO: There will be mergers in hard-hit industries

Marc Cooper, PJ Solomon CEO, joins Yahoo Finance’s Alexis Christoforous, Brian Sozzi and Brian Cheung to discuss the state of mergers and acquisitions amid the coronavirus outbreak.

Video Transcript

ALEXIS CHRISTOFOROUS: We're about 10 minutes into this trading day. And stocks are now mixed. S&P just went negative on us by a few points, Dow up 47, NASDAQ up 75. Joining us now is Marc Cooper. He is the CEO of PJ Solomon. And Marc, thanks so much for being with us. We want to take a closer look at M&A activity with you this morning. And I know 2019 was pretty good for M&A, but 2020 was off to a slower start, even before the coronavirus pandemic. Where do things stand right now with M&A?

MARC COOPER: Pleasure to be here. Pleasure to be in my living room talking to you in your living room.

ALEXIS CHRISTOFOROUS: Yeah.

MARC COOPER: So I think you characterized it correctly. Last year was a good year to date. Before this really got rolling, it was down but active. I would say a week ago, the curtain dropped, if you will. And that was really coinciding with all the shutdowns. And I think the M&A markets, for now, are pretty much shut down.

Now, you'll see sporadic transactions happen. And there certainly are transactions in the queue or that have been signed. And that might close over time, but new deals-- that's not what people are thinking about right now.

BRIAN SOZZI: Hey, Marc, Brian here-- always good to speak with you. What are you hearing right now in the oil space? This sector has been hammered because of the plunging oil prices. When did those mergers start? They're going to have to happen.

MARC COOPER: Yes, so that's one area where you could see-- and I think in general, where acquisitions might happen is under the heading of, can two companies come together and survive the shock of the environment now? Within oil, it's the shock of oil prices. So in fact, we're looking at a number of transactions with our oil franchise in Houston, where two companies can get together and better weather the storm. So we'll see some of that. I think frankly, though, much of what you will see in the oil patch is more traditional restructuring.

ALEXIS CHRISTOFOROUS: Marc, what about the airlines? Future looks very uncertain, even for some of the largest airlines. Do you think we're going to have to see some merger activity they are just simply to have these airlines survive at this point?

MARC COOPER: Well, I think we're still a little bit away from thinking about mergers in the airline space. I think it's now in the government's hands as to whether there'll be bailouts for these airlines. Could it be down the road like it was in 2008-- the government will force mergers to have stronger participants in the marketplace? Possibly, but I think for right now, it's about what the governments will do to support these airlines going forward. Obviously, a critical part of our economy-- once we get going again, which, by the way, being the optimist that I am, we certainly will get going again.

BRIAN CHEUNG: Hey, Marc, Brian Chang here. So point taken on saying that no mergers for right now-- a lot of companies just trying to figure out for the cash that they have what to do with it now. But in the future, there's a lot of talk about how the coronavirus could structurally change just the society that we live in. And if there were to be some V- or U-shape recovery and we do get out of this at some point in time, companies would feel comfortable dipping back into M&A, are there certain industries that you're watching for consolidation with this post-coronavirus world that could be coming down the pike?

MARC COOPER: Yeah, let me step back a second, though, just to make sure that the viewers understand what the progression will be. Number one on the hit parade right now is liquidity-- survival. And it's not dissimilar from 2008, which everyone is thinking about, whether they're cash-strapped now or they're not.

Whether they're healthy or they're unhealthy, they're thinking about how they weather the storm and who knows how long this storm might be. So there's going to be a fair amount of activity. You wouldn't call it merger activity, but you would call it investment activity. And I think you'll see the private equity with their dry powder playing a very significant role in investing in companies, á la what Whole Foods did back in 2008 with Leonard Green and investing a half a billion dollars to keep them going through that difficult time. So that's the first step.

The second step is, there will be mergers. And the mergers will come, in my view, in a few flavors. One will be, as we talked about before, difficult industries like retail and in site-based-oriented businesses-- movie theaters, amusement parks, the like. Those might have companies coming together to show greater strength and have synergies in order to withstand the difficult marketplace.

I think the second merger activity you're going to see are those for acquisitions, where there's been a revaluaton. And there will be a revaluation. And there will be some very attractive companies out there that the healthier companies can, in fact, invest in or acquire in order to grow their businesses.

So what are those areas? Like I said, certainly the hardest-hit are going to be the site-based entertainment businesses, no doubt. But I think it could be pretty much across the board. The restaurant industry is going to be decimated for the time being. So there could be very interesting activity there. But I think it could be in any industry where valuations have rationalized and the stronger players have the opportunity now to come in and buy value.

BRIAN SOZZI: Marc, you know this better than anyone. The investment banking industry and what you do is so much in-person-- so client-oriented, very relationship-building. How is that-- how has the coronavirus changed how you do business? And how do you think it will shape investment banking, looking out over the next year or two?

MARC COOPER: Yeah, that's an interesting question, because I'm living it as we speak. in fact, I ventured into the office on Monday and Tuesday just to get our organization fully capable technologically to work at home. And you know, we've employed some very interesting video conferencing capabilities and other capabilities that allow us to-- file-sharing capabilities allow us to do so.

I think it's becoming far more the norm and far more acceptable that people can do remote transactions, can do video as an alternative to insight meetings. And it was sort of frowned upon if you didn't go visit a client-- a client would say, hey, are you interested-- when, in fact, now, it's quite the contrary. So I think we're actually working quite efficiently with the group, where we're staying in touch with our clients. We have many means of doing so.

Transactions are happening. I was just hearing on one of our restructuring cases where the court is acting in a virtual fashion. So they're acting online as opposed to in-person. So this is going to-- I think this is going to be more the norm for the foreseeable future. And then, I think the interesting thing will be over the next six months or nine months when we get back to normal operating activity.

Do we continue some of these trends? A couple of my colleagues have said, gee, I've been I've never been more efficient, because I get up at 7:00 in the morning. I sleep in a little bit because I don't have to commute an hour. And I'm at my desk, working 24/7. So it's going to be an interesting exercise.

ALEXIS CHRISTOFOROUS: Yeah, for sure-- Marc Cooper, PJ Solomon CEO, we're all adapting to these changing times. Thanks so much for being with us.