PwC on how the global pandemic and economic recession are changing the M&A environment.
The COVID-19 crisis will have lasting impacts on many aspects of people’s lives, even after a vaccine is developed. The combination of a global virus outbreak and a self-imposed shutdown in many parts of the economy is significantly different from previous recessions and societal shocks. The Great Recession in 2007-2009, for example, had major financial and economic implications for individuals and businesses, but its enduring effects were mostly regulatory.
While the economy has been upended by the pandemic, a majority of companies aren’t changing their M&A strategy as a result. Deal activity has declined in 2020, but many companies are in a solid position to consider acquisitions during the downturn. One big reason is the unprecedented amount of capital that was available for M&A and other investments before the pandemic: cash on corporate balance sheets and private equity dry powder are high, and borrowing interest rates have been low. And now the pool of potential sellers could grow as valuations drop from the highs of recent years. History will prove instructive in the current crisis. As PwC research shows, organizations that make deals in a recession can see higher shareholder returns than their industry peers. While opportunities aren’t spread evenly across companies and sectors, some acquirers should be able to execute on transactions that align with their growth strategy and could help deliver excess returns. Considering the more reliable sources of capital and declining market valuations, we expect M&A activity to recover more quickly than the overall economy, with acquisitions leading certain sectors out of the downturn.
The new deal drivers: The forces reshaping inorganic growth
Still, this unprecedented time has many dealmakers understandably asking, “Now what?” The M&A environment was difficult in many ways before the outbreak. New technologies, protectionist policies, demographic shifts and other forces required a rethinking of deal strategies. Now, basic business principles are being challenged. The previous pursuit of lower costs and redundancies through globalization is giving way to creating business models that can provide more resilience.
In this landscape, deals will look different going forward. As companies advance from creating stability to pursuing growth, a new PwC series will explore five drivers that are reshaping the business environment and their impact on deals:
- New ways of being
- Pivot to a multinodal world
- Technology investment
- Shifting industry paths
- The future of capital
New ways of being
Even after the health crisis has receded, how we live, work and consume will have changed, with impacts for businesses and their customers. Fundamental shifts in individual and group behavior, business practices and social norms as a result of the coronavirus will influence consumer decisions and business operations.
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