During the pandemic crisis, as the global economy felt troubled, it may have seemed like the risks and uncertainty would dispel dealmakers from openly pursuing acquisitions. Navigating the strong headwinds of this year’s crisis has, for some, created opportunity to expand, develop and grow, where others have become cautionary tales of 2020. There have been high-profile examples, particularly in retail, that demonstrate how M&A activity has both its risks and its rewards.
There is a temptation, during financial recessions, to assume that business resilience is only as tough as the economy it supports. Yet, M&A’s have weathered economic turmoil before – from the dot com bubble (2000-02) to the recent recession (2007-09). Instead, seas of change like the current pandemic are more often the kinds of ideal environments that can help and nurture deals.
Activity may have temporarily slowed in its early months, but M&A transactions are quickly regaining momentum, demonstrated by high deal volumes in the global market during the second half of 2020. Originally, acquirers were silently awaiting signs of a more immediate recovery in early 2020. But near the year’s conclusions, M&A deal-making rebounded sharply. This is evidence that M&A deals have been spurred by opportunity in 2020, rather than stalled by the uncertainty of it.
Lessons from the Biggest M&A Deals of 2020
Less of a “Wall Street problem”, the pandemic represented a financial burden for the general public. This means business health was not always the victim of an uncertain economy that experienced various peaks and troughs throughout the year. In fact, many high-profile deals occurred, including record-breaking transactions.
1. AON buys Willis Tower Watson for $30bn
The insurance industry’s biggest acquisition on record is a deal whereby AON acquired Willis Tower Watson in an all-stock transaction to become the largest insurance broker in the global landscape. This is despite the rising risks to insurance – from climate concerns to cyber security – and represents an exciting merger founded on innovation and opportunity to scale and diversify a product in a market suffering from uncertainty.
Where insurance has played a crucial public role – with products such as income protection seemingly more attractive during recessions – the merger represents a move to develop resilience to a market that feels troubled by short- and longer-term worries with the direction of health markets and questions about its sustainability. It also presents a strategic opportunity to launch AON into global markets, creating a greater scalability, and therefore availability, of their insurance products.
2. Intuit Acquires Credit Karma for $6bn
Intuit is more popularly the platform for TurboTax, QuickBooks and Mint: a toolkit of successful finance software. Yet, with the interesting acquisition of Credit Karma, Intuit are now capable of building a more coherent product offering, completing its bundle of finance tools. With the rise of mobile finance, Intuit’s strategic manoeuvre to acquire a credit rating tool in Credit Karma seems not only relevant to its current line-up of software, but rewardingly complementary too.
Intuit’s acquisition of relevant finance software is a teachable moment: M&A’s can develop vertically to cover more range from their product offerings. Intuit’s merger with Credit Karma captures the spirit of new mergers that want to innovate markets long before fatigue settles in.
3. The year retail was changed
Imagery of shuttered shopfronts and empty city streets was a familiar one in the UK during 2020, where retail was one of the bigger targets for M&A. Media pundits have argued that this is the outcome of changes in consumer habits, where the coronavirus has shifted shopping to an online event. Online retailer Boohoo recently acquired Debenhams; clothing chain Next revitalised Laura Ashley with a new partnership; and the fallout of Arcadia Group’s assets seems to be gathering a lot of attention from dealmakers.
The takeaways from retail this year shows how fast the industry is changing, especially where it’s transforming shopping experiences into online events rather than ones on the high-street. The pandemic challenged the stability of traditional retail, with many heritage names being acquired from younger businesses.
With changes afoot, M&A activity can both thrive and negotiate new and exciting deals. Risks might either attract investment, or repel it. But the pandemic has proven that M&A deal-making can weather tough economies.
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