M&A opportunities in a volatile market

International Trends
September 16, 2020
Floyd Plettenberg
CEO (and co-founder) of Dealsuite.com

Dealsuite CEO Floyd Plettenberg shares his thoughts on (post-)COVID dealmaking: 'M&A in an economic shift pays off.'

For the past ten years, M&A has witnessed an unprecedented upward cycle, both in terms of deal volumes and transaction values. As a result, the market became very balanced. Companies on the buy-side and sell-side had years to define and sharpen their strategy, roll out plans for organic growth and whet their appetite for M&A. Anyone knew this couldn’t continue indefinitely. A downturn was on the cards, though no-one could foresee the change in the market would come so sudden and so radical.

A catalyst for M&A

Covid-19 has forced companies to re-evaluate their strategy with regards to M&A. At first, there was a temporary freeze in M&A activity across many market segments. Now that the initial shock has subsided, we start to see the outlines of a ‘new’ M&A landscape on the buy-side and the sell-side. It is clear that the build-up of the ‘frontline’, where supply and demand meet, is changing. Already we are seeing firms come to the market that would not have done so without COVID. In some cases, because they are in need of fresh capital. In other cases, because the new market conditions have radically changed their strategic outlook. From that perspective, what is currently happening serves as a catalyst for M&A.

Those who are quick on their feet profit most

The resulting volatility provides opportunity for those who are quick on their feet and willing to turn crisis into opportunity. Especially as long as some competitors are still too stunned to act. As previous research by PwC has shown, organisations that act fast and make deals in a recession outperformed industry peers. In fact, companies that made acquisitions during the 2001 US recession saw 7% higher shareholder returns than industry peers one year later. The advantage was even more pronounced for companies that announced deals in the first half of the downturn. Yet profitability is not the only way in which M&A pays off during a downturn. Many companies struggle to increase their top line as organic growth becomes more challenging. M&A is the alternative option for revenue growth and becomes a more favourable option to invest time and effort in.

Conditions are positive

What sets the current downturn apart from previous downturns is the fact that money is widely available. The enduring low-interest-rate causes money to seek a return in stock markets and (private equity) investments. Furthermore, with each year that passes more and better information becomes available. General sources of information improve and platforms with specific M&A-data and information come to market. A source like Dealsuite.com increases market access and ensures that you have a full overview of the market and don't miss out on opportunities. With the right data at hand, you can act swiftly and decisively when the opportunity arises.