Last summer was the busiest in decades for mergers and acquisitions, with more than $1 trillion worth of transactions around the world in the third quarter. That comes after a very slow first two quarters, when the uncertainty around the pandemic put deals on hold. So what’s with the corporate rush to buy and sell, and what do trends within those deals mean?
You’ve heard all the clichés. The bigger the better. Strength in numbers. Go big or go home. In a pandemic, clichés may not be so bad.
“In times of turbulence like this, companies’ strategies need to change,” said Steve Morrissette, who teaches mergers and acquisitions at the University of Chicago. He said right now smaller companies need access to bigger corporations’ cash. And corporations can get better value.
“So maybe we avoid dumb deals and avoid overpaying during a recession,” Morrissette said.
A recession can also shift what kinds of deals are made. Corporations see value in diversifying their portfolios, which usually means buying brands that complement their existing business.
But think about Walmart’s bid to buy part of TikTok. That would make a very diverse portfolio. Asish Ramchandran, a principal in the Merger & Acquisition Consultative Services practice of Deloitte Consulting, said big companies can make fundamental shifts when the market swings.
“Companies that have got a sound strategy behind the scenes, they are looking and waiting where they can step in and make a deal,” he said.
Meanwhile, some corporations are pulling back from diversifying geographically. Last quarter, international deals fell.
“So how do you actually go verify if a factory is actually capable of scaling up production in Asia if you cannot actually do a site visit,” Ramchandran said.
Plus, the pandemic has disrupted global supply chains.
“Once you’ve made those investments and your supply chain is built through China, if something happens there, then that’s actually a risky thing,” said Myles Shaver, who teaches strategic management at the University of Minnesota.
He said companies with the smartest strategies are using merger and acquisition deals to get ahead of the pandemic and look at how business will look once it’s over.
COVID-19 Economy FAQs
How many people are flying? Has traveled picked up?
Flying is starting to recover to levels the airline industry hasn’t seen in months. The Transportation Security Administration announced on Oct. 19 that it’s screened more than 1 million passengers on a single day — its highest number since March 17. The TSA also screened more than 6 million passengers last week, its highest weekly volume since the start of the COVID-19 pandemic. While travel is improving, the TSA announcement comes amid warnings that the U.S. is in the third wave of the coronavirus. There are now more than 8 million cases in the country, with more than 219,000 deaths.
How are Americans feeling about their finances?
Nearly half of all Americans would have trouble paying for an unexpected $250 bill and a third of Americans have less income than before the pandemic, according to the latest results of our Marketplace-Edison Poll. Also, 6 in 10 Americans think that race has at least some impact on an individual’s long-term financial situation, but Black respondents are much more likely to think that race has a big impact on a person’s long-term financial situation than white or Hispanic/Latinx respondents.
Find the rest of the poll results here, which cover how Americans have been faring financially about six months into the pandemic, race and equity within the workplace and some of the key issues Trump and Biden supporters are concerned about.
What’s going to happen to retailers, especially with the holiday shopping season approaching?
A report out recently from the accounting consultancy BDO USA said 29 big retailers filed for bankruptcy protection through August. And if bankruptcies continue at that pace, the number could rival the bankruptcies of 2010, after the Great Recession. For retailers, the last three months of this year will be even more critical than usual for their survival as they look for some hope around the holidays.
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