How are Mergers and Acquisitions faring in 2020?
The Covid-19 pandemic has had all manner of adverse consequences for the global economy as a whole. One facet of this has been the effect on the rate at which mergers and acquisitions are being finalised.
Those who might otherwise have approved these dealers are being given pause by the uncertain landscape around them. But what do the actual numbers look like, and what is driving them? And is there light at the end of the tunnel?
How have Mergers and Acquisitions been affected?
According to a report by GlobalData, the rate of merger in technology, media and telecom fell sharply during the first six months of 2020, by an astonishing 40%. That is not to say that there haven't been mergers going on; noting the success of platforms like Zoom, American telecoms giant Verizon purchased Bluejeans, a rival videoconferencing service. The need for this deal to go ahead was so obvious and pressing though that it is difficult to see the move as indicative of a broader trend.
Considerations made by sellers and buyers
The first reason for mergers and acquisitions to be stalled is to allow time for the parties involved to assess the timeline for recovery (which we will get to shortly). If a deal was already in the late-stage, however, then the cost of delay are often adjudged to be unjustifiable.
One thing that allowed Verizon to take the risk in a merger at this time is the strength of its balance sheets, and their 5G infrastructure, which will allow them to leverage the platform going forward.
The pandemic has also demonstrated the value of business diversity in resisting sudden economic shocks. Businesses might look to bring in new revenue streams through mergers and acquisitions, and thereby protect every party involved against further uncertainties of this kind.
What might recovery look like
Once the medical and political realities of coronavirus have been put under control, business may regain the confidence to resume these sorts of deals at the previous rate. One perhaps-overlooked consequence of the post-covid business landscape is the need for greater cybersecurity in an environment where the parties involved are conducting their deals online rather than face-to-face. Businesses will have to put in place measures to guard against costly leaks – and among the most important of these measures will be diligence on the part of those involved in the deals.
Preparing an Acquisition
Getting an acquisition over the line while providing the business with enough liquidity to survive often means resorting to finance. Asset-based lending, which uses invoices, property, and other assets as collateral against a loan, is a popular means of reducing risk and steadying the ship.