Mergers and acquisitions have largely ground to a halt in Australia as the COVID-19 crisis makes many deals too difficult to execute, but lawyers expect the market to pick up as buyers sitting on cash seek low-priced assets.

Doing deals under current conditions is especially tough, given that asset prices have been thrown into doubt and most face-to-face meetings and asset inspections are impossible. But adding to the difficulty are more stringent rules for foreign acquisitions, introduced by the government to stop foreign companies from scooping up nationally significant assets wounded by the crisis.

"The vast majority of the activity has stopped," said Tom Story, M&A lawyer and the co-head of the private equity practice at Australian firm Allens. "Probably four out of every five M&A mandates that we had on the go a month ago or on the books have absolutely gone on pause or fallen over."

Still-active deals are moving very slowly and for others, the buyers have canceled outright, including private equity firm BGH and the Ontario Teachers' Pension Plan's bid to acquire dentistry business Abano Healthcare in New Zealand for NZ$150 million ($89 million). Starwood Capital Group has also let its A$485 million ($307 million) offer for the Australian Unity Office Fund lapse.

The exception is for deals in sectors that aren't too strongly affected by the coronavirus crisis, such as energy, infrastructure, telecommunications and health care. For instance, the A$150 million takeover by Pacific Equity Partners of off-grid power generator Zenith Energy, represented by Allens, is going ahead.

But for the most part, said Story, deals are on hold until society and the economy get back to something approaching normal—when buyers can make a better-informed assessment of a target's earnings in the post-crisis environment.

"You'd probably need a normal earnings period for people to form a view about the value of a business and that means you need six or 12 months of normal trading to really properly market an asset and get full value for it," Story said.

While some buyers with cash might try to acquire assets more cheaply than they could have six months ago, target company boards will be very wary about opportunistic acquisitions, he said.

"You'll see a period of time, similar to the global financial crisis period, when there's a pretty big gap between the price expectations of buyers and sellers and that will mean there just won't be a lot of deals done for a reasonable period of time."

Gilbert + Tobin chief operating officer Sam Nickless agrees there will be a long period of decline and then expects the acquisition of distressed assets to pick up. "I'm presuming that there will be some pent-up demand for capital to find homes and there'll be some opportunities for investment. I think we might see that come back once people feel like the main part of this has passed and therefore they can price things accordingly."

Already, one significant sale process has emerged: Virgin Australia's board put the carrier into administration—similar to Chapter 11—while it seeks a buyer for the debt-laden airline.

"For those with cash and liquidity (particularly many private equity firms), the stock market decline and deteriorating economic conditions will provide a range of attractive opportunities to pick up companies at much lower valuations," the firm said in a note to clients.

Acquisitions of distressed assets should pick up in the next three-to-six months as the crisis drags on and affects more companies and acquirers feel more confident that the bottom of the market has been reached, said Norton Rose Fulbright partner Paul Lingard, who advises on M&A in the resources sector.

Some foreign owners of Australian assets might also retreat to their home geographies and put their Australian assets on the block.

But in the meantime, the logistics of doing deals are also holding back M&A. "That's the practical reality: things are taking longer; the mechanics are taking longer; due diligence is becoming harder; site visits are impossible," he said.

In particular, obtaining consent from international counterparties has become a lot more difficult. They can't have face-to-face meetings, which can be so important in negotiating deals.

Those difficulties are likely to remain, as Australia's borders will stay closed for the foreseeable future.

Additionally, the government has tightened up foreign investment rules. All foreign acquisitions, regardless of price, will need approval from the Foreign Investment Review Board (FIRB). Previously, the thresholds for needing approval ranged from A$1.192 billion to A$275 million, depending on the type of asset.

"There will likely be a rise in debt restructuring transactions for Australian businesses, along with opportunities to invest in distressed assets," the Foreign Investment Review Board said on its website. "Without these changes, it is possible many normally viable Australian businesses would be sold to foreign interests without any government oversight, presenting risks to the national interest."

FIRB is being given six months to approve deals rather than the previous 30 days.

The changes will add significant delays to M&A transactions, global law firm Jones Day said.

"Given the reality of further FIRB processing delays, the approval process will likely present real challenges for urgent transactions, including where one or more of the parties are distressed or are confronting near-insolvency circumstances," the firm said.