Neil Patel

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Post-pandemic M&A opportunities and challenges are certainly unlike any that have ever been seen before. However, as the business landscape continues to recover, experts are tracking the radical shifts in the mergers and acquisitions sphere.

The pandemic and lockdowns resulted in massive global recessions, market disturbances, and significant drops in consumer purchasing and spending. The upheavals in the world of finance brought M&A deals to a grinding halt. That was a phenomenon that extended to almost every sector worldwide.

Statistics indicate that M&A had already started to regain ground by the first quarter of 2021. M&A deals did up to 28.8% better than a year back in Q1 2020. Before transactions resumed and markets started their boom, incomplete deals were valued at an astounding $1T.

Fast forward to 2023, and post-pandemic M&A deals continue with privately owned companies merging to cope with the new normal. Mergers and acquisitions reflect the status of the economic ecosystem and trace its ebb and flow. And this boom is certainly encouraging.

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M&A Markets Started Recovery in Q3 2020

As was to be expected, M&A deals took a sharp nosedive in the first two quarters of 2020. As COVID-19 started to spread across the world, it created uncertainty in the business climate. Shaky economic prospects resulted in asset values becoming exceptionally volatile, with corporate investments taking a hit.

Not only were trillions worth of deals put on hold, but many top-tier dealmakers canceled acquisitions entirely. Some of the most impactful announcements came from LVMH, which terminated its M&A deal with Tiffany & Co. Softbank’s potential acquisition of WeWork and Xerox’s takeover of HP are other shelved transactions that made waves.

Interestingly, the second half of 2020 saw M&A activities rebounding faster than expected. Deals exceeded pre-pandemic boom conditions and carried forward well into 2021. Federal stimulus packages designed to support the economy injected significant liquidity into the markets.

Technological innovations also made great strides to cope with the demand for tools like Zoom for video conferencing. eCommerce companies like Amazon, media streaming platforms like Netflix, and smartphone mobile health applications are only some of the other areas that advanced quickly.

Post-pandemic M&A dealmakers aim to restructure their business models to remain in business. One way to do that is to collaborate with partners that can bring cash reserves into the business. Or, to pool assets and resources to conserve costs. Strategies like these enable them to lower prices to cater to weaker customer purchasing power.

Radical Shifts in Consumer Demand Buying Habits

During and after the pandemic, customer buying habits and behavior have altered radically. The trend is more toward online shopping and continues to sustain as part of the new normal. Online courses and e-learning have maintained interest.

While restaurants, bars, and food establishments faced severe setbacks because of the lockdowns, food delivery services are seeing an uptick. The worst hit is possibly the entertainment industry and the travel and tourism sector, including airlines, hotels, and hospitality services.

Although many of the industries are seeing a recovery as customers revert to their pre-COVID habits, others may not. As consumers adapt to the new normal, poorly performing businesses may have to resort to post-pandemic M&A to survive.

Yet another example is the rising trend toward entirely remote companies. Several businesses have made a permanent shift to cloud computing services using all virtual teams. They have adopted an ecosystem of software applications to serve their clients better, whether corporate or individual.

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Results of Relief Packages Coming to an End

The economic landscape must now adjust to federal relief packages drying up and rising interest rates. Taxation rates are also rising, and changes in business models may be the only way companies can stay afloat.

Larger corporations with adequate liquidity and securities available for sale have the option to buy out weaker competitors. That’s how they have improved their market presence, absorbed the customer base, and taken control of their intellectual Property (IP).

These intangible assets include copyrights, patents, trademarks, trade secrets, technical know-how, and other knowledge-based assets that set companies apart.

Distressed and faltering businesses are also quickly coming up for acquisitions by the appropriate buyers. Cash-rich corporations are maintaining reserves for the opportune time to grab these firms.

As a result, the federal government has to ramp up its anti-trust and non-compete laws. That’s how they can protect consumers and prevent unfair pricing.

Post-Pandemic M&A Are Going Digital

Technological innovations and tools that emerged during the COVID continue to impact how M&A deals transact. The availability of tools for conferencing, signing paperwork remotely, and AI-driven due diligence has helped streamline transactions.

As a result, stakeholders do not need to meet in person to conclude deals. Negotiations and discussions are done remotely, just as during the COVID to comply with travel restrictions and social distancing measures. Virtual meetings and deal closings have become the new normal in post-pandemic M&A.

Yet another fallout of the pandemic is the continued unstable market environment, which results in uncertainty. Since the valuations of target companies are volatile, acquirers prefer to leverage stock as payment options instead of hard cash. They may also negotiate for earnouts to mitigate some of the risk and volatility that smaller companies demonstrate.

Interestingly enough, the availability of AI or artificial intelligence to gather data and conduct due diligence has boosted post-pandemic M&A. Deals conclude within a shorter time frame of a few weeks, which is against the extended process of months or even years.

Dealmakers are leveraging AI to gather financial and other data about their targets to help them make well-informed decisions. AI can not only compile data but can also process it much faster than humans to deliver precise statistics. These tools are exceptionally useful not just for M&A but also for evaluating potential funding targets.

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Special Purpose Acquisition Companies (SPACs).

Special Purpose Acquisition Companies (SPAC) are firms that raise money through IPOs or initial public offerings. However, these companies do not have any commercial operations or conduct business. Their objective is primarily to acquire a company that has an operational business.

For this reason, these SPACs are also termed “blank-check companies.” SPACs gained significant traction during the pandemic as they raised more funding than conventional IPOs. That’s because they demonstrated a more viable IPO route with a lower risk factor.

Private companies wanting to go public but unwilling to invest the cost and resources for a traditional IPO also opt for SPACs. Merging with a SPAC is quickly becoming a “de facto IPO strategy” as buyers can start trading their stock on the exchange soon after the merger. You might also call the SPAC a reverse merger strategy.

Private Equity Investment in M&A

Since the mergers came to a virtual standstill during the COVID, post-pandemic M&A started to catch up quickly. Private equity firms are known to drive up activity thanks to the high level of ready funds and liquidity they have available.

Post-pandemic, more private equity firms have emerged in the market, with the competition for viable businesses heating up. Their ability to raise significant amounts of capital is driving up prices.

Traditionally, private equity investment is focused on the leisure and hospitality sectors, which took a huge hit during the pandemic. As a result, they have now shifted to other viable verticals like brands, marketing, life sciences, and tech.

Advertising, brands, and the media sectors are also attracting private equity (PE) investors’ attention. Several factors contribute to this interest, such as:

  • These business verticals have demonstrated resilience during the pandemic and remained in demand during the lockdowns.
  • Thanks to their capabilities to integrate innovative technologies, these sectors are scalable. They can also drive new innovations similar to other core tech industries.
  • Advertising and media are increasingly going digital, allowing for remote consumption and a lower reliance on an in-house workforce.
  • Data is a valuable resource and has quickly become the fundamental currency driving these sectors.
  • These verticals can quickly grow organically across state and international borders to capture new markets and specialties.

The rising demand for digitally-driven companies is resulting in higher asking prices. Sellers are demanding and getting more money for their companies in these sectors, especially from PEs. They are open to accepting the opportunity to exit.

The key objective behind private equity is to purchase and scale the companies in the short time that they maintain their investment.

The Focus is On Integrating Innovation

Post-pandemic M&A is about acquiring intellectual property, intangible assets, and technology. The COVID demonstrated to businesses that they need to restructure their operational models to become more resilient to unexpected risks.

And the one way to make that happen is to acquire companies that possess these assets. Any tech know-how that can ensure uninterrupted supply chains, operations, distribution, and customer retention is very much in demand. It helps acquirers stay competitive and risk-tolerant.

That’s how companies can strengthen their structure and ensure long-term success, scalability, and, most importantly, survival. This focus is the new normal in the post-pandemic business landscape.

Companies can choose to invest in in-house research and development to innovate. Or, they can enter into M&A transactions with other businesses that have the capabilities or talent to develop products.

From the seller’s perspective, the unexpected COVID has prompted many entrepreneurs to sell their companies. They may be open to staying on to run the company but want to get their money off the table.

Representation of Warranty and Indemnity Insurance

Post-pandemic M&A deploys more warranty and indemnity insurance in comparison to the last four or five years. This factor is consistent across the board regardless of the company’s size and scope. The primary reason is that sellers are unwilling to assume risks.

For this reason, buyers must conduct extensive due diligence to confirm the value and viability of the transaction. Insurance providers that underwrite the risks are open to offering meaningful insurance and covering more liabilities.

However, they also expect the buyer to address all the issues that can result in the deal falling apart. Acquirers must meticulously examine any significant exclusions from the policy before taking on unknown risks.

M&A in the Healthcare Sector

The pandemic spurred the rapid growth of the pharmaceutical sector thanks to the urgent need for treatment. Top drug manufacturers partnered with small biotechnology firms to develop innovative and experimental therapies for the virus. The race was on to find a vaccine as soon as possible.

Healthcare companies were under tremendous pressure to maintain the supply of medical and testing equipment and keep up with demand. There was a massive demand for equipment to treat patients with not just medicines and supplies but also machines.

Post-pandemic M&A in the healthcare sector is about assuring a consistent supply of booster vaccines. The new normal includes telehealth services, with doctors offering consultations over video calls by listening to symptoms and writing prescriptions.

Any non-critical medical issues are now resolved over the Internet without the need for in-person visits. Mergers and acquisitions in this sector involved advanced technology to make remote treatment possible. The focus is on acquiring new applications and software that can streamline healthcare.

Cross-Border M&A Transactions

Post-pandemic, the M&A landscape is noting a higher number of cross-border transactions. Countries like the UK have lower interest rates, which translates into the availability of cheaper assets and more liquidity.

These conditions attract acquirers from off-shore locations, and US dealmakers are quickly snapping up available opportunities.

To Conclude

The pandemic triggered radical shifts in worldwide economies, effectively changing how businesses conduct operations. Many companies have altered their operating models to ensure they are more risk-tolerant and have consistent supply chains.

Others recognize the new normal and adapt to changing customer buying habits and how commerce is conducted. Post-pandemic M&A is quickly emerging as a practical solution to acquire talent and IP.

For others, it’s a great option to divest and liquidate their investment before moving on to innovative concepts. These concepts may have more value in the post-COVID commercial landscape that is still recovering from the fallouts.

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Neil Patel

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