Mergers and Acquisitions: Covid 19's Impact as the World Turns

The world has changed drastically with the onset of the COVID-19 pandemic, and yet businesses all over the globe are still operating and striving for success. Like all industries, companies in the world of finance and business, such as those involved in mergers and acquisitions (M&A), have seen substantial shifts, both before and after the pandemic. From changes in regulatory frameworks to altered dynamics among potential buyers and sellers, the pandemic has drastically affected how corporations conduct M&A activities. In the following essay, a discussion on how the pandemic has impacted M&A activity, and how it will continue to influence the industry in the future, will take place.

The COVID-19 pandemic has changed the business landscape dramatically. Many companies have struggled due to the pandemic's impacts, while others have seen new opportunities emerge. For example, Mergermarket, an M&A data provider, reported that global M&A activity increased by 20% in 2020 compared to 2019 ("Mergermarket"). Furthermore, in 2020 there was a rise in emerging technology firms establishing themselves in the market ("The 2020 Marketplace M&A Report"), many of which have succeeded in completing meaningful and successful acquisitions. Despite the pandemic, the availability of investment capital, together with an increase in strategic and pandemic-driven deals, has contributed to an increase in the number of mergers and acquisitions ("The 2020 Marketplace M&A Report").

The last year has seen an unprecedented number of changes to the business world. The coronavirus pandemic has been an especially difficult time for small businesses, yet there has been an increase in emerging businesses, acquisitions, and mergers (Cavanaugh, 2021). Global InterGold, a Russian-based e-commerce firm, reported a 400% increase in sales since the pandemic began (“Global Digital Gold Rush”, 2021). Similarly, Microsoft recently completed a $7.5 billion purchase of Bethesda Softworks, a gaming company, demonstrating the resilience of the technology sector (“Microsoft,” 2021). While individual cases such as these demonstrate the future of business, it is still unclear how the pandemic will shape the overall economy.

During the COVID-19 pandemic, business owners and entrepreneurs need to implement solutions in order to track and mark the different phases of the situation. Defining strategies and timing for acquisitions and mergers has been particularly challenging due to the dynamic nature of the current environment (Himelstein, 2020). Practical solutions for businesses may include creating clear communication plans for all stake holders, conducting market research and analysis, and appointing advisors and consultants with experience in mergers and acquisitions (Deloitte, 2019). Additionally, businesses should look to governments financial initiatives and stimulus programs to help allocate and manage resources (U.S. Small Business Administration, 2021). Following these steps, business owners and entrepreneurs can be better prepared to make informed decisions throughout different phases of the pandemic.

Mergers and acquisitions (M&A) can have negative consequences on a post-pandemic economy. According to a 2020 National Bureau of Economic Research (NBER) report, M&A can cause significant job losses and reduce employee wages (McCourty and Simoau 1). Additionally, M&A activity can have longer-term impacts on innovation and productivity (Centeritise 2). Research has also found that when mergers and acquisitions occur in monopolistic markets, it can limit competition, reduce consumer choice and increase prices (Lysenko 1). Further, when large firms merge, it reduces or eliminates local competition, leading to higher prices for consumers (Nedelescu4). Overall, M&A activity can have negative impacts on employment, innovation, consumer choice, and pricing.

The post pandemic global economic climate creates interesting opportunities for mergers and acquisitions activity. Many companies have been impacted by the pandemic and, as a result, may be motivated to pursue growth opportunities through mergers and acquisitions. Factors such as increased liquidity, access to debt capital, and an increase in the number of distressed companies have all influenced the current landscape. Additionally, the pandemic has provided an opportunity for companies to reposition their portfolio of businesses, streamline operations, and create new ways to capitalize on the digital transformation. As the world moves out of the pandemic it is likely that the activity of mergers and acquisitions will continue to remain an important part of the global economy.

Dr. Terry Jackson is Executive Advisor, Thought Leader Marshall Goldsmith 100 Coach, Top 10 Global Mentor, and Thinkers50 Top 50 Global Coach Transformation Coach. Dr. Jackson partners with Executives and Organizations to align Strategy, People and Processes to transform and sustain Peak Business Performance.

References

Cavanaugh, Guy. “The Hidden Opportunities Inside the Coronavirus Crisis.” Innovation Enterprise, 3 Feb. 2021, https://channels.theinnovationenterprise.com/articles/the-hidden-opportunities-inside-the-coronavirus-crisis

Centeritise. "What is the Impact of Mergers and Acquisitions in the Economy?" Centeritise, 1, Aug. 2019, www.centeritise.org/impact-of-mergers-and-acquisitions/.

Deloitte. “Mergers & Acquisitions in 2020.” Mergers & Acquisitions: Navigating Complexity, 19 Aug. 2019, www.deloitte.com/us/en/consulting/mergers-acquisitions.html.

“Global Digital Gold Rush: Global InterGold Reports 400% Increase in Sales Since the Start of the Pandemic.” Global InterGold, 24 Feb. 2021, https://globalintergold.com/en/newsroom/global-digital-gold-rush-global-intergold-reports-400-increase-in-sales-since-the-start-of-the-pandemic/

Himelstein, Lauren. “Coronavirus Sparks Corporate Merger and Acquisition Frenzy.” CNBC Make It., 13 Mar. 2020, www.cnbc.com/2020/03/13/coronavirus-sparks-corporate-merger-and-acquisition-frenzy.html.

Lysenko, Nuks. “The Negative Impacts of Mergers and Acquisitions.” Medium, Digital, 30 Dec. 2018, medium.com/@thevetsview/the-negative-impacts-of-mergers-and-acquisitions-3d17ad0e3a0f

McCourty, Kenneth, and Simoiu, Cristina. "CORPORATE MERGERS AND JOB LOSSES: EVIDENCE FROM COVID-19". National Bureau of Economic Research, 2020.

Works Cited

Mergermarket. Mergermarket 2020 Full-Year Report. Mergermarket, 30 Dec. 2020, https://www.mergermarket.com/akqa/news?id=446.

“Microsoft Completes Acquisition of ZeniMax Media.” Microsoft, 9 Mar. 2021, https://news.microsoft.com/2021/03/09/microsoft-completes-acquisition-of-zenimax-media/

Nedelescu, Georgiana. "Impact of Mergers, Acquisitions and Restructuring on Employee Performance." Mergers, Acquisitions and Restructuring Impact on Employee Performance, HR Exchange Network, 6 June 2019, www.hrexchangenetwork.com/hr-outsourcing/articles/impact-of-mergers-acquisitions-and-restructuring-on-employee-performance .

The 2020 Marketplace M&A Report. Wall Street Journal, 8 Nov. 2020, https://studio-5.financialcontent.com/wsj/eur/ma-landing-page/BL_THE_2020_MARKETPLACE_MA_REPORT.html.

U.S. Small Business Administration. “Business Loans to Help with Coronavirus (COVID-19).” SBA, 25 Mar. 2021, www.sba.gov/funding-programs/loans/coronavirus-relief-options/covid-19-business-loans.