COVID-19: Rebalance for resilience with M&A

April 16, 2020

M&A during the COVID-19 crisis

COVID-19 is overwhelming in both its humanitarian and economic impact. Forward-thinking leaders need to act now to optimize their company’s resilience—rebalancing for risk and liquidity, while assessing opportunities for growth coming out of the downturn.

Understandably, the market for mergers and acquisitions (M&A) contracted rapidly in the wake of COVID-19. Deal volume in the first quarter of 2020 dropped to a seven-year low, with deal value down 33% from the year before. But it’s clear this is no ordinary downturn: Fundamental changes in consumer behavior, supply chains, and routes to market are knocking companies off balance. While some shifts are temporary, other things will never be the same: The new normal will be “never normal”.

Current and future viability depend on C-suite action now. We all are facing a cycle of near-term actions for stability and strategic moves that will create new futures for companies and industries. In the coming weeks and months, M&A will move at different paces by sector and geography, depending on how severely each is impacted by the crisis. By repositioning, leaders can help outmaneuver uncertainty and outperform those less prepared. Readiness now determines resilience later.

A bar graph showing M&A returns in downturn markets.

M&A in down periods is an important mechanism for recovery and growth

Position now

The next few weeks are critical as companies make necessary short-term moves for stability and resilience.

Take stock of the position the crisis places the company in

Identify critical risk points, including need for liquidity, struggling partners, gaps in operations, and potential hostile takeovers. Assess moves that could help alleviate these immediate challenges.

Make rapid prioritization calls on M&A activation

Include the in-flight deal funnel. Decide what should be put on pause, what should be shifted to a different timeline and what should stop.

Evaluate opportunistic plays with long-term potential upside

Start with another look at the investment strategy for in-flight and near-term deals. Evaluate opportunities to place bets on assets such as insolvent startup IP, talent acquisitions, and distressed tuck-ins.

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Focus on accelerating out of the downturn next

Crisis impacts will continue to unfold over months. Making the right moves to position your company to accelerate out of the downturn is essential.

Look beyond the immediate horizon

Assess how industry structure is likely to evolve and implications for M&A, ventures and alliances. Analyze the potential for acceleration of consolidation, convergence or other major industry shifts.

Determine if consolidation is on the horizon

Assess possible transactions and the ability to influence them. Consolidation, vertical integration and similar plays are not right for every company but understanding what might transpire and how to react is essential.

Reshape medium-term M&A agenda, take action early

Continue to leverage M&A for resilience and growth, including divestitures and placing additional strategic bets in growth markets and sectors beyond distressed plays.

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In the never normal, readiness determines resilience

Every crisis creates opportunity to be better prepared for the future. M&A plays a key role in shaping resilient growth.

Take a broader view of M&A across the entire ecosystem

Consider how the COVID-19 crisis aftermath will cause industry structures to evolve. Then build the required resilience.

Include alliances in your expanded view to realign the company

Coming out of the crisis, the roles of such networks will evolve in many industries to resolve weaknesses exposed by the pandemic.

Continuously revisit priorities and potential disruptors

Lessons learned from the COVID-19 crisis will help companies position themselves better to leverage M&A for growth and resilience. Scan for potential risks and disruptors, conduct scenario planning and identify potential candidates to proactively address any weaknesses.

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