Impact of COVID-19 on Mergers, Acquisitions &amp; Corporate Restructurings

Chokri Kooli,Melanie Lock Son

doi:10.3390/businesses1020008

Abstract

Most economic downturns have stemmed from inefficiencies in the economic system. This research paper aims at investigating the impact of the COVID-19 pandemic—an exogeneous health crisis—on global mergers and acquisition (M&A) activity. By gathering statistical data about global transaction volume, value, and type, the study aims at getting a pulse of how mergers, acquisitions, and other restructuring activities have been utilized to support corporate objectives amidst these unprecedented times. While the full-fledged impact of COVID-19 cannot be fully captured at the moment (early 2021), the study attempts to illustrate how this change to economic stability caused a Schumpeterian creative destruction of industries. As firms prepare for the growth that will follow this downturn, M&A will enable companies to look into a future infused with technology and structurally different business models. This research paper thus captures the deliberate transformation occurring in the deal world to discuss the possible outlook of the M&A deal market in the post-pandemic world.

Highlights

While many were speculating about an economic downturn in 2020, no one foresaw the economic shocks that would be brought by the onset of a pandemic
Deal Volume in the Different Waves of the Pandemic As observed in Figure 1, when the World Health Organization declared a world outbreak, the global volume of mergers and acquisition (M&A) deals experienced a sharp decline of about 50% as of mid-February 2020
Compared to the 2008 economic downturn where there was a lack of liquidity on the markets, in 2021 we can expect the M&A market to continue on this momentum, as debt and equity financing are readily available and low-interest rates prevail across the globe

Summary

Introduction

While many were speculating about an economic downturn in 2020 (following a bull market), no one foresaw the economic shocks that would be brought by the onset of a pandemic. The COVID-19 pandemic halted most corporate operations and locked most of the world’s population inside their homes for health and safety purposes. The juggling act of complying with new sanitation standards, government restrictions [3,4], and supply and demand constraints have exposed firms’ capacity to face the new business environment shaped by the health crisis. In this novel environment, mergers, acquisitions, and corporate restructurings have become key considerations for companies looking to realign their strategic plans to better compete, let alone survive. Regardless of the strategy undertaken by corporations, CFOs were faced with major hurdles in forecasting cash flow and performing accurate valuation given the unpredictability of the pandemic

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Conclusion