Deals industry insights

2020 midyear outlook: New M&A patterns start to emerge

As the US economy fell into a recession amid the COVID-19 outbreak, the number of deals in the second quarter dropped by 29% from a year earlier, and values fell by 79%. To put this in perspective, this is the single largest year-over-year decline in deal activity since the dotcom recession in 2001. However, there are indications that the market is starting to stabilize. Deal volumes in May and June were higher than in April, and a few large deals were announced by mid-July. As the market begins to stabilize, certain patterns have begun to emerge.

Key actions to consider

As dealmakers pursue transactions, they will need to:

  • Balance thoughtful divestitures with creative acquisitions
  • Develop a well-thought-out value creation plan
  • Act early to drive transformation
  • Consider partnerships or joint ventures for deals involving emerging technologies
  • Invest in more resilient supply chains
  • Rethink vertical integration
  • Reevaluate workforce needs as workplaces evolve
  • Factor in future real estate needs given the rise in remote work.

Five key drivers could reshape businesses and the market for deals in the months ahead


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Industries will shift in big ways. Reimagine the future of your company.

The direction of many sectors is rapidly changing, potentially creating new business models and industry leaders. Investors and companies that adapt their acquisition and divestiture strategies early could secure growth for years to come.

Industries will shift in big ways. Reimagine the future of your company.

Understanding a sector’s dynamics at a granular level is more important than ever for dealmakers. In previous downturns, one or two sectors typically were more adversely affected than most. In this crisis, however, the impacts have been more dispersed and widespread, which has been reflected in deal activity since the crisis began.

For example, technology has proved more resilient than hospitality, where the path is much less certain. This dispersion also resonates within industries, where sub-sectors of consumer markets have thrived despite declines in consumer spending and employment, while others have been constrained. We expect the unevenness in sector activity relative to deal volumes to continue well into 2021.

Going forward, deals will require companies and investors to rethink the future of certain industries. In our view, five key drivers could reshape businesses and the market for deals in the months ahead. Creating value in every deal will also be increasingly important in this complex environment, which means dealmakers will need to carefully evaluate how transactions impact a company’s strategic positioning, operational excellence and capital efficiency.

Industries will shift in big ways. Reimagine the future of your company.

Balance thoughtful divestitures with creative acquisitions. Given how this health crisis has changed the way we live and work, ask how certain industries could evolve. Ensure business models and sector prospects are being changed to respond to the current environment. Winning companies will strategically reposition themselves for the new sector reality. We expect divestitures to increase as businesses align their holdings with the accelerated strategic agenda and look to raise capital. However, the most imaginative acquirers will consider not only what is for sale, but what should be in their portfolio, instigating carve-outs to capture the assets and value they deserve.

A well-thought-out value creation plan is more critical than ever. Given the quickly evolving market dynamics, acquirers should be more mindful of creating value on each transaction, especially as they reach the integration stage. As outlined in our 2020 M&A Integration Survey, after several years of improving trends with respect to value capture, acquirers have recently found it more difficult to achieve either strategic or financial success in their deals. Additionally, many aspects of the operating environment, from talent to supply chain, have now been upended. While the opportunities for acquirers are significant, executing on the details of an integration plan have outsized importance in this environment.


Industries will shift in big ways. Reimagine the future of your company.

M&A eyes tech. Innovation accelerates in times of crisis.

Innovation has continued to thrive in the face of the recent uncertainty. As stay-at-home orders and other COVID-related restrictions raise demand for technology and digital infrastructure, tech firms remained the top acquisition target – representing 27% of transactions during the second quarter. This is higher than last year’s 24%, with private equity investors and tech companies driving the bulk of these transactions.

M&A eyes tech. Innovation accelerates in times of crisis.

As we continue through this new deal cycle, the need to invest in technology will continue to increase — whether to embrace new customer realities or improve operations. Initially, this will involve known technologies, such as cloud computing and software as a service (SaaS), which operate under subscription-based business models that have proven to be relatively resilient during this recession. Interestingly, we are seeing early indications that there may be a pause in investment in artificial intelligence (AI), as adoption of this evolving technology has proven difficult in several sectors, especially with the added pressures of the crisis.

Also, companies in many sectors are embracing newer technologies earlier than in previous cycles. Venture capital (VC), a leading indicator of future investment patterns, has begun to focus attention on digital health, medical devices and FinTech – areas that ranked among VCs’ top five investment targets, according to PwC/CB Insights Q2 2020 MoneyTree report.

Looking ahead, tech companies will likely be among those driving M&A’s recovery, both as acquirers and as targets. With their outsized access to capital, many firms are well-positioned to make deals poised to reshape emerging sectors, such as Amazon’s acquisition of self-driving startup Zoox and Uber’s acquisition of Postmates’ food-delivery service.

While big tech firms especially could drive strategic deals, the size of these transactions will likely be smaller. Megadeals will be the exception rather than the rule, as regulators continue to raise concerns about the scale of tech companies. Big Tech will also likely favor deals that cross sector lines versus transactions that further consolidate and expand their already dominant market share.

M&A eyes tech. Innovation accelerates in times of crisis.

Act early to drive transformation. New and emerging technologies will continue to accelerate transformation into everything from shopping to banking. For example, VC investment in financial technology rose by 40% during the second quarter from a year earlier, according to PwC/CB Insights’ MoneyTree report. Companies willing and able to adopt different technologies early on and foresee how tech could play a critical role in the future of their business will be well-positioned to drive growth for years to come.

Negotiate partnerships or joint ventures. Deals involving new and emerging technologies can be complex, given their limited history and information. Companies that see a different future playing out across their business but are potentially constrained by capital or talent may want to consider a partnership or joint venture. These transactions can be a way to stay connected to emerging solutions while keeping up-to-date on the latest innovations.

M&A eyes tech. Innovation accelerates in times of crisis.

Cross-border deals get more complex. Companies rethink global expansion.

The ongoing health crisis has further upended a cross-border deal environment that was already fraught with economic and political issues, including the US-China trade war, growing populism and the declining influence of multilateral institutions. Interestingly, cross-border deal volumes remained relatively steady throughout 2019 before taking a sharp dip in the first quarter of 2020. In the second quarter, the number of cross-border deals declined further by 30% from a year earlier, as the consequences of the global pandemic unsettled companies and investors around the world.

Cross-border deals get more complex. Companies rethink global expansion.

The downward trend in cross-border deals will likely continue through the rest of this year, as companies focus their attention on shoring up their domestic businesses. Additionally, governments from the EU to Australia are discussing plans to protect domestic companies from foreign takeovers.

Some cross-border investing will continue, especially for those well-capitalized companies that can take advantage of current opportunities. With the US and other countries becoming more protectionist, however, cross-border deals could take new shapes. Long-term, companies and investors are likely to look more regionally versus globally to scale businesses, as it may be easier to strike deals closer to home.

In terms of the overall global business environment, the health crisis has exposed weaknesses in today’s hyper-efficient supply chains. Most rely on minimal inventory and low-cost suppliers, but this model has proved insufficient as geopolitical events, trade wars and other global disruptions flare up. As a result, most companies are increasingly reevaluating their supply chains in the context of their overall overseas strategies.

Looking ahead, companies will likely be less inclined to shoulder the risks of being the sole owners of their suppliers, distributors and overall supply chain. Expect to see less vertical integration in the long term, as companies focus more on the core functions of their business and potentially outsource others.

Cross-border deals get more complex. Companies rethink global expansion.

Invest in more resilient supply chains. Doing business abroad is getting more complex. To reduce risks, dealmakers need to determine if the target’s supply chain is both efficient and resilient. If not, value capture plans must consider measures to reduce disruptions, including investing in new technologies to better track problem areas across networks or move some manufacturing sites/assembly nodes onshore or closer to core markets.

Rethink vertical integration. While vertically integrated companies are more efficient, they’re less adaptable to global disruptions. Going forward, dealmakers will need to rebalance the risks to their supply chains and consider alternative ways to grow besides vertical expansion.

Cross-border deals get more complex. Companies rethink global expansion.

Workplaces rapidly evolve. Employers respond to retain key talent.

Today’s workplaces are continually evolving, but the COVID-19 crisis has accelerated changes at many companies where stay-at-home orders have forced employees to work outside of traditional offices. Employees have been adjusting to different schedules, while also trying to find balance or separation between their life at home versus work.

Workplaces rapidly evolve. Employers respond to retain key talent.

Workplace norms and demands could continue to shift well after the crisis is over. These changes and others could present broad implications for dealmakers that are acquiring key talent and other assets. As a June 2020 PwC survey of office workers and employers suggests, traditional offices aren’t obsolete, but they’ll change significantly going forward. Most office workers want the option to work from home more frequently, even after COVID-19 is no longer a threat. Workers also want employers to help them set boundaries between their work and personal lives to improve their own productivity.

This sentiment crosses industry lines: More than half of employees surveyed in industries such as financial services (64%), consumer markets (66%), and telecommunications, media and technology (60%) reported that they want to work from home at least three days a week. Moreover, while executives and employees surveyed agree on the top two requirements in order to increase remote workers’ productivity — specifically, greater flexibility and better equipment — less than half of executives plan to take steps to help manage workloads or set clear rules for times when people must be available. By addressing these concerns, employers can make remote work more effective and satisfying.

Workplaces rapidly evolve. Employers respond to retain key talent.

Reevaluate workplace needs. Dealmakers developing plans to integrate the workforce of a company they’ve just acquired will need to evaluate how workspaces have been reconfigured and what could enhance employee productivity and efficiency, as well as safety. Consider what types of tools, equipment and work schedules employees will need to succeed.

Factor in future real estate needs. In assessing the value of your deal, consider how much office space your acquisition target will need in the future. These projections are becoming less clear with the rise of remote work triggered by the pandemic. In PwC’s survey of employers, 30% of executives expect to need less office space due to remote work, while 50% anticipate an increase due to longer-lasting social distancing requirements or growth in their workforce.

Workplaces rapidly evolve. Employers respond to retain key talent.

Looking ahead

Dealmakers have entered one of the most uncertain environments in their careers, where playbooks from past economic and political crises no longer apply. Despite the recession, we expect M&A to recover ahead of the overall US economy. Certain sectors are already seeing the beginnings of an M&A rebound, although the deals environment is still exposed to a resurgence of the pandemic. We expect the momentum to build in the coming months, with the number of divestitures and other deals likely to increase as government aid supporting businesses and households through the pandemic dissipates.


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Colin Wittmer

Deals Leader, PwC US

John Potter

Partner, Deals Sectors Leader, PwC US

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