Boards should take a fresh look at their company’s deals strategy

The global pandemic and economic recession have changed the deals environment

The COVID-19 crisis will have lasting impacts on many aspects of people’s lives, even after a vaccine is developed. The combination of a global virus outbreak and a self-imposed shutdown in many parts of the economy is significantly different from previous recessions and societal shocks. The Great Recession in 2007-2009, for example, had major financial and economic implications for individuals and businesses, but its enduring effects were mostly regulatory, with few big changes in how people live and work.

While the economy has been upended, a majority of companies aren’t changing their M&A strategy as a result of the crisis. Deal activity has declined so far in 2020, but many companies are in position to consider acquisitions during the downturn. One big reason is the unprecedented amount of capital that was available for M&A and other investments before the pandemic; cash on corporate balance sheets and private equity dry powder are high, and borrowing interest rates have been low. And now the pool of potential sellers could grow as valuations drop from the highs of recent years.

Tomorrow’s deal dynamics: What could influence your deal strategy in 2020 and beyond?

The new deal drivers

New ways of being
Shifting industry paths
Opportunities in innovation
Pivot to multinodal world
The future of capital

New ways of being

Even after the health crisis has receded, psychological impacts and behavioral changes will remain for both consumers and businesses. Generational differences will manifest among consumers and how they consume. Business models will be reconfigured as working from home gains traction, balanced with the real need for personal contact in business dealing. Important societal issues, like privacy, will be re-debated.

Shifting industry paths

Unlike other recessions, the COVID-19 crisis is having widely diverging impacts on different sectors, giving rise to both “winners” and “losers.” We will see this pattern emerge in terms of both the pattern of recovery for individual sectors, but also in terms of their long-term prospects.

Opportunities in innovation

4IR technologies (AI, robotics, drones, etc.) show promise for the post COVID-19 world and will be increasingly adopted. With history as a precedent, new disruptive business models will arise from the crisis.

Pivot to multinodal world

The drivers of balkanization will continue, making cross-border trade and investment increasingly problematic. The key business issue will be balancing efficiency with resilience.

The future of capital

After immediate crisis liquidity issues are met, the reconfiguration of business models will favor patient sources of capital. Interest rates will remain low, driven by central bank policies, but are subject to long-term trends in global savings.