Making Mergers and Acquisitions Possible in the COVID Era

Published: April 09, 2021

COVID-19 caught the world by surprise and businesses were unprepared. Mergers and Acquisitions(M&A) which are infamously challenging even in normal times had to fend with newer, never-before issues in this most unusual of situations.

Yet M&A activities continued. While some closed, others were killed. Two deals though, stood out.

In April 2020, the Boeing-Embraer merger worth about $4.2B fell through after Boeing walked away.

In May 2020, Verizon snapped up BlueJeans a video conferencing company in a $500M deal.

What was striking about these two deals?

In the first, Boeing suddenly faced a scenario it could never have believed possible. Airlines in countries across the world stopped flights. The pandemic had reshaped the market. The demand for air travel dropped drastically, which led to the Boeing-Embraer merger falling through.

As for the Verizon-BlueJeans deal, it was touch-and-go. The deal closed in record time. Verizon saw it not as just another video conferencing solution for work-from-home companies, but as an enterprise solution with great potential for telemedicine and online learning opportunities. A quote from BlueJeans said, “By combining BlueJeans’ innovations in video with Verizon’s innovations in 4G, 5G and Mobile Edge Computing, we expect to be able to open up new use cases and expand our ability to serve customers in new and exciting ways.”

What had changed?

Businesses realized that was there was no option but to outmaneuver the uncertainty. Adaptability. Agility. Flexibility. These would help them thrive even in these changing times.

But the rules of M&A changed. Even as smaller deals continued, valuations fluctuated. Due diligence exercises had to be conducted remotely. With no end in sight, deals had to close without even a single face-to-face meeting – something unheard of.

Focus on liquidity

The focus of M&A activities shifted to building resilience and reducing risks. The environment brought to the forefront the importance of liquidity. Businesses looked inward to free themselves of unproductive or nonstrategic units. Divestitures offered potential opportunities for sources of cash. But as one business leader said, “divestitures can’t be considered ‘acquisitions spelled backwards’ because they have a completely different value-curve than typical acquisitions.”

With some of these deals often appearing like ‘distress sales’, it became a buyer’s market.

However, this was not true across the board. Some industries thrived and flourished during these times by either adapting or leveraging their current business offering to the market’s needs.

Communication and collaboration technology companies, life sciences companies, supply chain businesses and virtual healthcare providers were highly valued and the most sought after. Innovative technologies drew greater attention and the drive to accelerate digital transformation only became stronger. Many thought leaders said that more transformation occurred during the pandemic than would have transpired during a normally comparative 5-year period.

According to Brian Levy of PwC US, “COVID-19 gave companies a rare glimpse into their future, and many did not like what they saw. An acceleration of digitalization and transformation of their businesses instantly became a top priority, with M&A the fastest way to make that happen-creating a highly competitive landscape for the right deals”.

On the ground, M&As presented a new set of practical challenges.

Establishing a connection.

At the interpersonal level, with air travel restrictions, maintaining and establishing a relationship between the various parties was a challenge. Many had to leverage solely virtual meetings.

Conducting due diligence remotely.

Where physical assets and facilities were involved, some businesses resorted to live video calls and wherever possible the acquiring company sent a local employee. Where the assets were predominately intellectual property, technology came to the rescue and smoothed out the process. Due diligence became more data intensive relying heavily on advanced analytics and AI.

Building in a new, creative valuation structure.

Historical earnings are traditionally used to project future earnings, but these had to be tweaked given that the COVID disruption unsettled the market and performance with new financial models.

No let-up in M&A activities

Corporations were relentless. They struck deals. Businesses successfully carried out mergers and post-merger integration activities using a combination of remote or in-person hybrid models.

What this highlighted was that adaptability and flexibility were the driving success factors. Among both sellers and buyers, those that were digitally enabled had the upper hand as they were more nimble and could move faster.

It is this ability to rapidly respond in a dramatically shifting landscape that keeps businesses alive. And it is the adoption of digital technology that provides businesses of all sizes to survive. A technology platform that is robust, flexible, and scalable ensures your business the resilience to weather any storm or in this case a pandemic.

SAP S/4HANA is the solution that reduces complexity, helps ease the valuation process, and substantiates clear business processes within both acquired and acquiring entities.

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