M&A and COVID-19: Charting new horizons
Recovery could rewrite the rules of M&A
As companies embark on the path to recovery, M&A is poised to have an outsized influence in shaping the “next normal.” But in the aftermath of COVID-19, it is inevitable that deal making will materially change to reflect the new priorities of a post-crisis world.
The post-COVID world will unleash structural and systemic changes and it is widely expected that recovery will be highly asymmetric across regions and sectors. Most sectors will reinvent themselves in order to thrive and many will use M&A to accelerate this transformation.
But as companies prepare for a new world with fundamentally reshaped economies and societies, it is inevitable the deal making environment will also materially change. Beyond traditional M&A, companies need to deploy a wide range of inorganic growth strategies such as partnerships with their peers, co-investments with private equity, investment in disruptive technologies, cross-sector alliances with specialists, and partnership with governments.
A combination of defensive and offensive M&A strategies should emerge as companies strive to safeguard existing markets, accelerate recovery, and position themselves to capture unassailable market leadership. Redefining M&A in terms of these scenarios and choices will bring much needed clarity of purpose while confronting uncertainties.
The impact of the COVID-19 pandemic has almost immediately propelled many companies into survival mode. As a result, many companies will turn to M&A – whether by choice or necessity – to safeguard their future.
- M&A to salvage value. Companies that have been severely impacted by the crisis and are in a financially vulnerable position, will need to take decisive measures to secure their survival. Some will turn to portfolio optimization to identify assets that lack strategic fit and could be divested. Others will take radical actions including distressed asset sales to salvage value from loss-generating divisions.
- M&A to safeguard markets to maintain competitive parity. Companies where the impact has been less severe, will need to build financial resilience by extracting deep synergies from recent deals. Many will consider alliances or co-investment opportunities to reduce risk and capital outlay in their core business.
The COVID-19 crisis has demonstrated the attraction of new digital channels, agile operating models, and supply chain links. Many companies will need to actively pursue transformative acquisitions to rapidly adapt to the irrevocable changes to their business models.
- M&A to transform business and safeguard the future. Companies with a strong balance sheet but expecting a significant degree of structural disruption to their sector would use M&A to safe-guard their customer base and supply chain. While others will explore acquisitions and alliances to close gaps in their portfolio and accelerate long-term transformation to their business models.
- M&A to change the game. A select few resilient and strategically well placed companies should use M&A and other investment activities to capture unassailable market leadership. It would require alliances that includes both large specialist partners as well as start-ups from the innovation ecosystem. They also need to use M&A to acquire disruptive companies at the edge of their existing businesses and use those as the springboard to launch new offerings that will shape their sectors in the future
Charting new horizons
The post-crisis M&A environment will be materially different. Corporate purpose that intertwines sustainability with commercial success, resilience and building trust across a wide coalition of stakeholders will be at the cornerstone of deal making. Well-planned, bold moves will cement lasting industry leadership and incontrovertible societal gain.