Corporate mergers and acquisitions during a pandemic

The pandemic has a significant impact on wellbeing and people’s mental, emotional, social and financial health; the global financial turmoil it has unleashed means that companies are being prudent with cash reserves and may also find it harder to raise financing for future deals.

Our first and immediate thoughts during the COVID-19 pandemic are for the health and wellbeing of entire populations around the world. Corporate mergers and acquisitions (M&A) teams are no different with an immediate focus on their employees, their colleagues and their families. Looking beyond this, what are thoughtful companies and deal teams doing — or not doing — from an M&A perspective, and how are they readying themselves for what comes next? As the new normal starts to emerge and stability is restored, organizations will be better able to judge how they can operate post-crisis and what we will have learnt from this pandemic — whether that is a new way of doing things permanently, or a way to react more effectively to such “black-swan” events.

Objectives: At this point in time, corporates are making sure — first and foremost — that their employees, including their deal teams, are doing well, keeping safe and healthy. This is leading to an explosion in activity ranging from health and wellness exercises, to communication and employee engagement, as well as scenario planning for the economic impact of the current situation.

Thinking through the stages of the crisis:
As the global pandemic continues, and new ways of working emerge, companies will respond in their own ways and at their own pace, but in general we see activities falling into the following stages:

  1. Managing through the crisis: The initial reaction and adaptation, followed by a period of sustaining operations; how do we deal with the immediate issues and what are the necessary activities we need to be engaging in now?
    We’re currently seeing any number of (prospective) deals being cancelled or being put “on ice”. The deal-teams are re-valuing the targets after the economic turmoil and re-thinking the rationales for the original proposition. Whilst undoubtedly some new deals will be started, and new opportunities will arise, the short-term impact appears to have been a significant reduction in new transaction projects, and some deal teams, accustomed to working at a fast pace, are being repositioned to assist with COVID-19 teams and other areas to help the enterprise.
  2. Restoring stability: Resetting and reimaging operations under new assumptions, protocols, focus areas, and pace, and helping bring people back to work; as some parts of the world start to return to a new resemblance of normal — how does that impact the transactions going on and the deals being done?
    At the moment, cash is king and will remain so for a while. While the pandemic has a significant impact on wellbeing and people’s mental, emotional, social and financial health; the global financial turmoil it has unleashed means that companies are being prudent with cash reserves and may also find it harder to raise financing for future deals. Several serial acquirers that we spoke to raised the expectation that we could see an increasing number of deals established as partnerships between strategic and financial investors as confidence starts to return.
    This period will likely see some opportunistic acquisitions by organizations that have managed to weather the crisis relatively intact and possibly some necessary divestitures from companies that didn’t. A clear guideline from the 2008 financial crisis is to beware cheap buys: If it looks too good to be true, it usually is! While no-one wants to be portrayed as taking advantage of the current health crisis, deal teams will be dusting off their playbooks to be ready to move at pace for interesting opportunities that will arise.
  3. Operating post-crisis: Resuming sustainable operations under the new post-COVID-19 business model, which may be similar to — or different from — how things used to be. How will this impact the way in which we do transactions and what does this entail?
    So, where will we be once this health and economic crisis has passed? Our conversations are already indicating that many expect corporates may revisit the nature of their portfolios and will take the opportunity from future transactions to reshape their business models. Phrases such as “a reassessment of supply chains” and “right-shoring key functions” come up repeatedly. In general, however, this is speculation at this point. The most common answer when we ask, “What will change?” is silence. The best HR M&A leaders are focused on steadying their teams, delivering on current deals and staying close to corporate strategy teams so that they are ready to play their part in future deals.
    However, some consistent themes are already becoming clear – for instance, the increased value on effective communication to employees, the value of metrics and data analytics in M&A over “gut-feel” — particularly when deal teams are not face-to-face — and the premium on quality leadership that employees can rally behind and trust. Finally, several corporates are already asking whether employees will still be happy to go back into the office? Will working from home be a new normal — and what does that mean going forward?
    As yet, there are no clear answers on what the future holds. HR M&A teams are navigating the current situation as best they can, focusing on their people first and starting to think about the future. As each country and each business moves through the stages of the crisis, we will learn more, and we will share what we hear and where we see best practices developing.