While "haves" buying beleaguered "have-nots" will certainly be part of the equation post-pandemic, as it always has been in the M&A world after a crisis, deal drivers will be very different than after the 2008 recovery, some specialists say.
After 11 years of mostly declining mergers and acquisitions, which hit a nadir in April, the pros see a resurgence, but not a ballooning, by the end of 2020 and into 2021.
Deals at the end of the first quarter totaled $618 billion, down from $956 billion the same time last year, according to Dealogic.
Post-pandemic, more people will work remotely. Willis Towers Watson M&A Senior Director Duncan Smithson says big tech companies that facilitate remote work will be on the prowl for start-ups that can expand their suite of products.
Joe Gromacki, widely regarded as one of the top M&A lawyers in the country, stresses the coronavirus pandemic has hit all businesses, while the 2008 financial crisis did not.
Gromacki, who heads the corporate practice at law firm Jenner & Block, says businesses with healthy cash reserves will likely see acquisitions as a faster way to expansion than organic growth.
At the same time, he says, companies in sectors hit hard by the pandemic such as hotels, restaurants, airlines, agriculture and mining are likely to avoid M&A deals to focus on paying down debt and rebuilding their balance sheets.
Gromacki says his law firm, with offices around the country, is a perfect example of how remote working is likely to revolutionize the use of real estate.
"We've had a massive increase in Zoom meetings with clients," Gromacki told CFO Dive.
He added the increase of home offices and the greater use of tech by consumers for everything from food shopping and delivery to banking is going to likely spark a greater reliance on tech throughout their lives.
Pause to reassess
Smithson predicts many deals that were in the pipeline but delayed because of the pandemic will still be consummated.
The acquirers, says Smithson, are using the time to reassess valuation and how the deals are structured. "They’re thinking if a transaction makes sense from a strategic point of view, let's press ahead," Smithson told CFO Dive.
He says his clients have been in a holding pattern, noting the values of deals declined by 39 percent from the first quarter of 2019 to the first quarter of 2020.
He predicts medical device companies are likely to be buyers in the coming M&A resurgence, along with providers of remote working technologies.
Smithson says private equity firms will have substantial money to invest. "Clients are telling us M&A will come back and come back with a vengeance," the Wilson Towers Watson executive reports.
Banks well capitalized
One thing that bodes well for M&A activity when the coronavirus pandemic abates compared to after the financial crisis is banks are better capitalized, Treliant Managing Partner Ross Marrazzo said.
He pointed out safety and soundness may be still impacted by credit markets despite the strength.
"But this compression, along with the ability to operate, may force some banks into looking to suitors or becoming M&A targets for stronger banks," the Treliant expert pointed out.
The downturn comes on the heels of the previous 10 consecutive quarters where buyers have failed to add value.
With 170 deals completed in the first three months of 2020, deal volumes are significantly down compared with the previous quarter and the lowest since early 2014.
"COVID-19 has sent financial markets in an accelerated tailspin and significantly disrupted the normal flow of M&A deals," said Smithson.
As with during the recession, companies are likely to prioritize short-term actions over longer-term initiatives, he noted. But those able to stay the course, and focus on strategic long-term investments, will lay the foundation for continued success once the crisis ends.
The popularization of virtual data rooms and video conference calls could make due diligence for M&A more difficult than it was in the aftermath of the 2008 crisis.