Navigating M&A In The Covid-19 Era

Companies that pursue M&A during uncertain times outperform those that do not, according to the data. Here's how to proceed in the "never normal."

Covid-19 is overwhelming in both its humanitarian and economic impact. There are few areas of business and society that the pandemic has not touched—and the M&A landscape is no exception. Since the start of 2020, deal volume 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.”

Over the coming weeks and months, those that can navigate M&A successfully stand to become more resilient and better positioned coming out of the downturn. But with so much uncertainty shrouding the future, many CEOs may be questioning: When and how do I adjust my M&A strategies during the now, the next and the never normal?

Often, a look back can help determine the way forward. We recently released an  M&A report discussing how M&A activity historically dips dramatically in economic downturns. During these moments of market contraction, our research found that companies that make M&A moves during uncertain times typically outperform those that do not. For example, companies that bought in a down period saw a 22% increase in total shareholder return in the three years that followed compared to those that did not.

There are, of course, unique challenges in the M&A landscape across different industries and geographies that CEOs need to address during the Covid-19 crisis. Forming a view on what will drive industry consolidation, who will be consolidated, and how to react is key to making better M&A decisions. For example, players in multiple industries are re-evaluating vertical integration out of necessity to shore up weakened, but critical, suppliers. Consolidation, vertical integration and similar plays are not right for every company but understanding what might transpire and assessing the ability to influence possible transactions is critical.

From an M&A perspective, this is an important time to act. Forward-thinking leaders will take a holistic approach, making necessary short-term moves for stability and resilience while keeping opportunistic growth plays on the radar, where possible. There are several key tactics that CEOs can follow to successfully navigate these waters:

• Evaluate carefully and move at speed. By strategically repositioning through M&A, CEOs can recalibrate for resilient growth. The key is finding balance between making necessary short-term moves for stability and resilience while keeping opportunistic growth plays on the radar, where possible.  For new moves such as divestitures, decide if seeking an exclusive arrangement is preferable to an auction. For alliances, define the most critical elements in the ecosystem to address, and identify, potentially new, partners most able to solve these needs. For opportunistic plays, evaluate carefully where you can place bets on assets such as insolvent startup IP, talent acquisitions, and distressed tuck-ins. Suppressed valuations may be a partial driver, but opportunities that may not have been tenable in an up-market also may become possible, or new imperatives for growth may emerge.

• Infuse M&A with analytics. The Covid-19 crisis demonstrates that agility is more essential than ever. Analytics capabilities help enable companies to scan proactively for disruptors and opportunities, make real-time decisions, balance short and long-term actions, and achieve greater speed to value from M&A in an ongoing, uncertain environment. The most effective analytics strategies may differ across industry but include data-driven and AI-enhanced search and screening, analytics platforms to accelerate one-company operations, prior to systems and process integration, and cloud-based accelerators for systems integration and transformation (e.g., AWS, scaled environments for SAP and ERP consolidation). New data management and analytics capabilities allow companies to better identify acquisition candidates, synergy opportunities and risks – and provide a more complete picture for decision-making.

• Look toward the future. The Covid-19 pandemic exposed critical weaknesses in almost every business. Every crisis creates opportunities to be better prepared for the future. To do this, companies should assess how industry structure is likely to evolve and what the implications are for their M&A strategy, ventures and alliances. CEOs should use this insight to frame the next wave of M&A responses to rebalance and reposition. Accenture research found that leaders are already doing this, including one global financial services company that announced a strategic merger just as the outbreak started and plans to complete it to better position for the future.

The actions CEOs take now will impact their company’s current and future viability. By repositioning through M&A, leaders can help outmaneuver uncertainty. In fact, our analysis shows those who leverage M&A well as part of a holistic response to the crisis over the next 12-24 months will be more likely to outperform those who do not in the next three to seven years. Readiness now determines resilience later.