Insight

M&A in a post-COVID world: Tips for successful deals in the new normal

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Carrying out mergers and acquisitions is tough in any environment. Post-COVID uncertainty, it may be even tougher.

But this doesn’t mean all deals need to be put on hold. Indeed, with the effective use of new and creative collaborative tools, technologies and techniques, both buyers and sellers may be able to adapt to the changed environment a lot faster than in past financial and economic crises.

Based on my observations of how the M&A landscape is evolving in the ‘new normal’, here are my top recommendations for corporate acquirers to successfully navigate these uncertain times.

Tip 1: Hold more meetings to build trust remotely

Are you afraid the deal won’t go through without a physical handshake? Whilst travel restrictions and social distancing rules have taken face-to-face meetings off the table, it is equally true that C-suite executives have more time on their hands as a result. I have personally carried out an important acquisition in the US during COVID, without the long-haul flights and waste of time that accompany the travel for physical meetings.

Indeed, with entrepreneurs and managers facing far fewer distractions, even greater interaction and engagement can be achieved than what was possible pre-COVID. Having said that, it is also essential that acquirers utilize their time efficiently- holding more meetings, engaging with more C-suite executives from the seller side, and strategically using video calls and one-on-one discussions to build trust in a remote environment. In scenarios where physical meetings are absolutely necessary, my advice would be to identify potential partners in the target company’s location that can be leveraged to manage relationships on the ground, whilst continuing to cement and build remote-working relationships virtually.

Tip 2: Master virtual due diligence

Let’s face it, due diligence will probably take longer in a post-COVID environment.  Dealmakers will now need to factor in new risks that have arisen, or existing risks that have been enhanced, on account of the pandemic. For instance, due diligence in the new normal will inevitably involve a rigorous assessment of the extent to which COVID-19 has adversely affected the seller’s business, suppliers, operations, financial results, clients, employees, and order book, as well as factoring in any additional risks such as heightened cybersecurity threats in a work-from-home scenario.

Besides understanding the new commercial landscape better, dealmakers should also add a healthy dose of scepticism to the mix and ensure they are asking themselves why a seller is selling at this time, considering the increased market distress in a post-pandemic context.

At the same time, the data-intensive and transaction-level analytics enabled by the latest technologies ensures that virtual due diligence- whilst no doubt challenging and time-consuming- can be conducted both efficiently and accurately. Moreover, replacing physical due diligence centres with virtual data rooms not only lowers set-up and operating costs, it also facilitates multi-party accessibility, secure storage and easy recall of confidential documents. Outside of the pure data realm, managing more hands-on elements of due diligence, such as site visits, may call for workarounds involving greater innovation, for example, conducting virtual plant tours.

Tip 3: Shore up internal M&A capabilities

Executing M&A remotely through the pandemic has presented dealmakers with a challenge unlike any other faced before. Indeed, now more than ever, companies must be crystal clear on their acquisition goals and ensure that they ask the right questions on how a target fits into their acquisition strategy.  As such, it is highly recommended that companies take their internal M&A capabilities to the next level.

Be it upgrading M&A operating processes, honing deal playbooks, building supportive software solutions or acquiring all requisite skills and resources – companies must be well poised to conduct a remote M&A activity for all types of deals. Such an in-house M&A team should be geared to support the business to manage deals remotely through the crisis, tide it over a still-uncertain economic recovery, see it across all deal phases, and help it envisage multiple deal-type scenarios that could present themselves in this volatile economic environment.

Tip 4: Think sustainable when you acquire a business

In a world that is looking increasingly towards sustainable investing to accelerate post-pandemic recovery, businesses risk being left behind unless they proactively plan around how best to infuse ESG considerations into their own products, services, operations and supply chains. As such, forward-looking companies are fast realising that identifying, assessing and managing inherent ESG aspects of their business also offers unprecedented opportunities post-COVID. M&A has a crucial role to play in this transition, as companies begin the long road towards sustainability, or at the very least, acquire green targets.

Indeed, as COVID-19 continues to transform the economic landscape, M&A mindsets must transform in parallel. Companies that consciously choose to invest in target entities with a strong ESG agenda will not only be able to plug identified ESG gaps into their own value proposition, but also arrive at a combined entity that transforms the whole organisation into a more sustainable venture. Here, ESG assessments are a crucial tool to take advantage of synergistic acquisitions that maximise value creation for the merged entity.  

Make every deal count

In the final analysis, it is worth recalling the observations of a Harvard Business Review study during the global financial crisis (2007-2008), which found that companies that made significant acquisitions during an economic downturn outperformed those that did not. As companies began to come to terms with the pandemic, a similar trend was seen in 2020. More megadeals (M&A deals valued at US$5 billion or more) were executed in the quarter from July to September than the preceding six months.

So, what are some final words of wisdom for corporate acquirers in the new normal? Don’t opt to be out of action through these challenging yet exciting times! Ultimately, those M&A dealmakers who strategically master the above steps and forge ahead amidst current economic upheaval will also be the ones best positioned to prevail in the new normal.