The coronavirus pandemic has halted M&A activity, but it could prove positive for longer-term risk management practices
Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
A risky picture for mergers and acquisitions?
Raconteur | Sally Whittle | Jun 29, 2021
The coronavirus pandemic has halted M&A activity, but it could prove positive for longer-term risk management practices
The coronavirus crisis has presented organisations with many challenges around mergers and acquisitions but, in the long term, perhaps the lessons of 2020 could reduce risk in M&A. M&A activity started to slow at the beginning of 2020, before coming to a virtual halt in March with the UK in lockdown.
A good company in 2019 would expect to see several interested buyers, but now organisations are having to work harder to get deals off the ground.
“We’ve seen many deals paused or cancelled, and we’re seeing far less cookie-cutter deals,” says Phil Adams, chief executive of GCA Altium investment group. “What this means is we’re having to work harder and use our initiative to create deals and navigate bilateral agreement.”
Greater reliance on data
The vast majority of M&A negotiations are now happening remotely, which means the personality of a management team is less of a factor in transactions. When buyers and sellers get around a table, the charisma of a company founder can be a critical part of the negotiating process.
See: Lawmakers Take Aim at Big Tech with Push for Sweeping Overhaul of Antitrust
In a COVID-19 world, however, we’re seeing more focus on cold numbers, and requests for much more, and more detailed data. “I don’t think this is a bad thing because we are seeing organisations doing better risk assessment because of this trend,” says Andrea Brody, CMO of Riskonnect.
Virtual meetings
Replacing physical meetings with virtual tours and roundtables has been more successful than many people expected, says Riskonnect’s Brody. As such, it seems likely the M&A sector will never return to the old “normal”.
“When you’re doing a deal these days, it’s very focused on data and virtual conversations. I think as people become comfortable with that type of transaction, we will see a fall in the number of physical meetings, even as things go back to normal,” she adds.
“I think we will see an accelerated trend towards more remote transactions, which is a good thing because you’re spending less time flying, and I think people sometimes make better decisions when they’re not swayed by the personalities of the management team.”
Narrowing of Sector Activity
Some sectors have boomed during the pandemic and he expects to see interest in these sectors over the next couple of years.
See: What You Should Know About 2020 Merger and Acquisition Increases
“Sectors like technology are doing very well, and specifically hosting, and any companies with contractual, monthly recurring revenue,” he says. “These businesses will command a premium because they will be in a better place to ride out the downturn.”
While the M&A landscape may look very different after the COVID-19 crisis passes, the key thing for organisations is to take the lessons of 2020 and use them to build resilience in a post-COVID world.
“The companies that are already planning how to come out of the crisis and deal with that new landscape will be the ones that survive and thrive,” says Brody. “This crisis has given many financial services companies the opportunity to really look at their risk management and assessment, and make positive changes.”
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