The coronavirus crisis impacts all facets of business, including the M&A landscape which is contracting rapidly. Deal volume since the beginning of 2020 dropped to a seven-year low, according to Dealogic, as at the end of Q1 of 2019 the value of announced mergers was $572 billion and at the end of Q1 2020, it was down 33% at $371.61 billion. While Covis-19 challenges are unique to each company and industry, many leaders face the same questions and decisions as the actions they take will impact their businesses current and future viability.
The crisis is causing fundamental changes in consumer behavior, supply chains and routes to market. While some of these changes are temporary, other shifts will be permanent: The new normal will be “never normal.” However, even in crises, there are always discrete, strategic opportunities to acquire high-quality talent, intellectual property and capabilities. M&A is one way that leaders can reposition their businesses in order to outmaneuver uncertainty and drive resilient growth. While not every business is in the position to acquire, those that are can make these investments toward long-term resilience while also helping preserve the capabilities and talent of distressed companies. Further, our analysis shows that companies that acquired during a downturn saw a 22% increase in total shareholder return in the three years that followed compared to those that did not.
Approaching M&A with a digital mindset amid Covid-19
Digital technologies like artificial intelligence and advanced analytics can help organizations to accelerate their pace and expand their insights quickly—advantages that are especially crucial in times of rapid change. These technologies can transform the M&A process and deal cycle as they 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.
Yet, many companies are still hesitant to fully integrate these digital technologies into their dealmaking process. Historically, the M&A mindset has been cautious, and dealmakers embraced a traditional playbook that typically involves human analysts manually analyzing spreadsheets and crunching data. While that playbook historically demonstrated results, new digital tools are opening the door to improve the deal process significantly—from target screening to post-deal integration. Advances in computing power and increased technological sophistication mean M&A teams can do what they simply couldn’t just several years ago.
Infusing digital technologies into the traditional M&A process will also ensure organizations remain ready and agile throughout every phase of the deal cycle, which is crucial especially in this time of uncertainty:
- Empowering deal strategy and diligence: Providing data-driven and AI enhanced search and screening, and conducting analytic industry stress tests to model future evolution.
- Preparing for pre-close: Leveraging analytics platforms to accelerate company operations prior to systems and process integration, and using organization and culture analytics to enable better talent and operating outcomes.
- Being successful post-close: Extending the use of ecosystem partners to redefine work through AI and automation, and adopting cloud-based accelerators for systems integration and transformation.
By implementing digital technologies throughout the deal cycle, businesses will be empowered to respond to the Covid-19 crisis by making necessary short-term moves for resilience and stability, while also keeping opportunistic growth plays on the radar when possible. In doing so, it’s important to note that this will look different for each company and industry, depending on how severely each is impacted by Covid-19 and the subsequent economic downturn.
As Covid-19 continues to cause major business disruptions worldwide in a manner that uniquely defies forecasting, it’s more important than ever for leaders to be agile in their response. Leveraging digital tools and advanced analytics may appear risky at first sight, but our experience with clients shows these capabilities can unlock significant value in any deal.
Now is the time for organizations to be forward thinking about M&A Analytics as they rebalance for risk and liquidity, while also assessing opportunities for resilience and growth as companies come out of the downturn.