A shakeup in deals to shape up industries amid COVID-19

Even with the onset of the COVID-19 pandemic, deal activity has remained relatively strong in what could be described as predominantly a buyer’s market. A recent research conducted by PwC, termed ‘Creating value beyond the deal’ found

PwC Director –  Deals Ruvini Fernando

PwC Director – Mergers and Acquisitions  Kavinda Weerakoon

that the deal-making machinery has been far from idle. Despite a lack of physical meetings, deals have still gone ahead and 10-hour video conferences have not been unusual. 

PwC Director – Deals Ruvini Fernando said, “This only means one thing – crisis creates business opportunities, and to this end, the economic downturn impact and the need for companies to restructure their balance sheet will pave way for opportunities. It’s clear that the crisis will reshape the world of deals. We believe that M&A activity will lead the way this time and buyers will now be in the driver’s seat as corporations begin to divest from areas of their business that they can no longer justify and focus on their strongest business lines.” 

She further affirmed that PwC believes some sectors will be changed forever, as will the way businesses are conducted, and many of those changes will be a consequence of the completion of upcoming deals. Environmental, social, and governance (ESG) considerations will gain ground and ESG investment strategies that benefit investors, communities, and the planet are seen as creating value that goes beyond financial profit. 

“For example, we envisage a time when polluting assets are bought and transformed into low-carbon businesses in ‘buy dirty, sell clean’ transactions as investors start modelling this new ‘impact turnaround approach. This being the case, they can help companies reach a wider audience of stakeholders who are increasingly considering ESG when they make investments,” Fernando added. 

PwC Director – Mergers and Acquisitions Kavinda Weerakoon emphasised, “As businesses emerge from lockdowns and capital markets (both public and private) reopen and thrive with large corporates and state enterprises raising money, the types of deals that are prevalent and the reasons for these are likely to reshape industries, whilst the pressures of the economic downturn and the need for companies to restructure their balance sheet will create opportunities.” 

According to Weerakoon, deals are likely to ramp up once a baseline has been established. “Businesses that have been hit hard, but have solid fundamentals may become acquisition targets. In certain other industries, decisions will be driven more by strategy. Strong businesses may take the opportunity to adapt their business models to this new normal, perhaps acquiring and picking off underperforming competitors,” he explained.

As such, while recognising that a release of pent-up demand is inevitable, PwC expects to witness a wave of deal activity driven by cash-rich funds and corporations with strong balance sheets aided by the imminent availability of debt. 

The findings also echoes anecdotal evidence that investors are increasingly willing to invest in businesses with a long-term strategic growth plan, allowing the companies to pursue their strategy free from the short-term pressures.

Fernando further stated, “It is predicted that deal activity in the next 12 months, as world economies start to reopen and rebuild, may be the most consequential of the next decade. Companies will face critical choices in the way they respond to the pandemic, which will determine whether they remain viable in the long term. Whether and how to operate in the M&A market may end up being a deciding factor.” 

With offices in 155 countries and more than 284,000 people, PwC is among the leading professional services networks in the world, helping organisations and individuals create value by delivering quality in Assurance, Tax and Advisory services. PwC’s Mergers and Acquisitions team helps companies originate, create, execute, and realise value from deals. Through data-driven insights, PwC helps businesses realise the potential of their mergers, acquisitions and divestitures and capital markets transactions.