The world may be in the grip of a global pandemic, but corporate leaders are already thinking about what will happen when the situation stabilises—and research finds that mergers and acquisitions (M&A) will be high on the agenda.
According to a poll by Ernst & Young (EY) there remains a medium-term ambition to look for deals to complete. And this despite M&A seeing many deals put on hold as the pandemic spread across the globe.
EY’s survey finds that 56% of the global executives polled will actively pursue M&A in the next 12 months, with 38% focused on business resilience as a key feature of target firms and 39% expecting valuations to fall.
This comes amid gloomy expectations for the future. Of the 2,900 executives surveyed in the poll, 73% expect Covid-19 to have a severe impact on the global economy with significant supply chain disruption and falling consumption.
Operating models are being urgently reviewed: 52% of executives are moving to change their current supply chain structure, while a hefty 41% have invested in “accelerated automation”.
‘Reimagine, reshape and reinvent’
According to Steve Krouskos, EY’s global vice-chair of Transaction Advisory Services, while workforce welfare and job preservation remain priorities thoughts have inevitably turned to the future.
Transformation plans that may have been underway have frozen but will restart with “added energy” while “executives will have to make faster moves to reimagine, reshape and reinvent their business and create long-term value”.
Krouskos said: “The ongoing Covid-19 outbreak and its impact on major economies has not caused dealmakers to shelve their plans entirely. Deals continue to be powerful means to reshape portfolios and accelerate the transformation imperative facing CEOs.
“As the post-financial crisis period shows, the M&A landscape often enables companies to make high-quality acquisitions in a recovering market. Lessons have been learned from the 2008–12 M&A downturn, which hindsight shows was an opportunity to make acquisitions of high-quality assets that would have fuelled faster growth in a recovering market.”
It is no surprise that executives should turn their minds to M&A. Falling valuation will create acquisition opportunities. In a blog post, Boston Consulting Group, an international advisory firm, says that for corporates with buoyant balance sheets lower prices open up “opportunities to pursue deals that create long-term value”.
The firm says: “Our research demonstrates that deals done during weak economic times create value for dealmakers and their shareholders.”
Such commentaries are clearly in place to alert executives to the facilities of advisory firms, but the issues they highlight will no doubt play on current thinking in boardrooms around the world.
However, in recent months close observers of M&A activity have warned the competition authorities are increasingly “interventionist” .
According to CMA figures, in the two years to the end of January 2020, 18 takeovers/mergers saw themselves in Phase Two investigation, of which only five were cleared.
A collection of big brand companies have recently found themselves subject to CMA scrutiny. Watchdogs are looking at the merger of Amazon and Deliveroo, PepsiCo with Pioneer Food and Just Eat with the Dutch company Takeaway.com.