Dealmaking in any shape of recovery

The global economy has endured a seismic shock from the coronavirus pandemic that has caused tragic loss of lives and livelihoods. As policymakers begin to plot a course of economic recovery ahead, there is much debate amongst economists about what shape the eventual rebound will look like: V (quick recession and sharp upturn), U (longer recession and slower upturn), W (double dip recession) and L (much lower new normal).

The uncertainty created by this unknown timeline can paralyze any decision maker in a business, especially CEO's who know that if they don't grow their business it will eventually wither and die in the competitive field. As CEO's are confronted with multiple growth challenges, the only sources of future growth are either organic (internally sales and product driven) or inorganic (Mergers & Acquisitions). The M&A strategy is much faster at growing at scale, so presents a unique opportunity when the world is changing fast.

Focusing on the fundamental drivers of value will enable a quick assessment of great fit targets that can add to the future growth of the business. I categorize these in 4 key areas:

1. Markets/Customers : gaining new markets or strengthening existing relationships
2. Products/Technology : adding adjacent products and protectable technologies
3. Operations/Systems : expanding locations and capabilities
4. Leadership/People : enhancing the expertise of your team

Accelerating the initial stages of the M&A process (particularly matching a pipeline of potential targets to the fit profile and getting an initial dialog going with the sellers), should allow an acquirer to prioritize which deals to steer to an early close. Being prepared to do due diligence in a remote-work environment will be important to sellers, so communicating early on how the deal process will be managed could provide a strong signal of buying credibility. Valuations may be more reasonable given capital market dislocations, but this is balanced by the uncertainty in modeling the financial returns. A robust fit with the 4 value drivers provides some buffering for the unforeseen and also allows for more future flexibility if the planned growth strategy needs to adjust (which it almost certainly will to some extent).

No matter the shape of the recovery, this ability to shift resources in a targeted direction through focused M&A can deliver a significant competitive advantage that can endure well past the recovery.

Craig Mullett is President of Branison Group LLC, an M&A advisory firm based in Connecticut. Craig is an experienced global dealmaker, having advised on M&A in 16 countries.