COVID-19 – The Pandemic That Changed the World of Mergers & Acquisitions

At the beginning of the pandemic, global M&A came to a standstill. Companies focused their attention on keeping employees safe and businesses running during the historic disruption. As companies embark on the path to recovery, preparing for a transformed world with reshaped economies and societies, the need for alternative M&A and financing strategies is greater than ever. Cap Expand Partners provides business valuation, M&A advisory, and capital raising solutions to help realize growth in the (post-)pandemic economy.

Impact on businesses

COVID-19 radically transformed the global business environment and produced long-lasting shifts in consumer behavior. At the beginning of the pandemic, companies paused their pursuit of new M&A deals, lacking a clear view of the future marked by uncertainty. However, during a period of remote operation, organizations have shown great tenacity, reshaping their organizations to tackle the crisis and empowering teams to make decisions more quickly.

Despite the challenges surrounding long-term planning, there is a historic opportunity for organizations to rethink their business models. Long-term resilience can be achieved by evaluating strategic priorities. Years will go by before we will be able to distinguish temporal disruptions from long-lasting impacts. Although we cannot yet grasp its full extent, COVID-19 has taught businesses to be prepared for unexpected events that radically transform business management and society as a whole.

How companies have adapted their M&A strategies

Appetite for M&A remains strong despite the pandemic. Companies and PE firms have accelerated adoption of virtual tools to facilitate deals, and rapid digitalization has helped the recovery in M&A activity. Despite these developments, the in-person part of deal-making is difficult to replace. Performing operational due diligence remotely remains inconvenient. Nevertheless, the majority of decision makers with whom we speak with remains optimistic that M&A will continue to be a driver of their companies’ future growth.

Changes in investing trends

Society’s expectations for businesses are changing. Evaluating environmental, social, and governance considerations has become pivotal, as has the overall focus on sustainability. Furthermore, companies contemplating M&A deals need to prepare for new regulatory challenges. Regulators are honing in on their impact on cybersecurity, competition, and national interests. Particularly for tech companies, concerns regarding data security and privacy continue to rise. This new environment is not conducive to cross-border dealmaking.

We anticipate shifts in investing trends due to changes in risk tolerance caused by COVID-19. As minority shares allow for greater flexibility and the opportunity to test the waters from a geographical and market perspective, we expect a relative decline in acquisitions involving full ownership.

Make-or-break time for businesses

Government surplus, abundance in capital markets, and low interest rates have sustained higher valuations. Industries such as technology and pharmaceuticals have particularly benefitted during the pandemic. However, concerns regarding an increasing number of ‘zombie firms’ are real. As the economy pulls off the government welfare band-aid, we will start to see the severity of the wound.

The pandemic has reinforced the necessity to adapt quickly in order to survive, which includes the use of defensive M&A strategies. In order to address current and future challenges, we expect managers will acquire new capabilities to reshape their business models. As they continue to streamline their portfolios to focus on core strengths, we expect M&A will continue to be a key component of strategic agendas.

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