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Mergers and Acquisitions: Trends to watch in 2021

Mergers and acquisitions, an aspect of the business world that has been rapidly growing in recent years, were expected to continue blooming coming into 2020. Projections made at the end of 2019 predicted growth reflective of previous years, with added optimism riding on the booming economic status of 2019. What no one could predict? A global pandemic and the virtual halting of the world’s economy. Now, the business realm is trying to ascertain where M&A might trend in the future. We’ll be taking a look at the past, present, and future of M&As to see where we might be headed.

A Look Back to 2019

Mergers and acquisitions are essentially the fusing of two companies together into one entity. It’s an easy way for businesses to gain vertical or horizontal integration in an industry without having to break into a new part of it from scratch. This business “strategy” of joining with another company to create more market share has become an even more popular move in the past several decades. Of course, this was reflected in 2019 as well, especially since it was another year of strong economic growth for the U.S. economy.

Even though M&A’s have been trending upward in the last few years especially, deal activity came to a halt around mid-March as the pandemic began to heat up, the economy began to slow down, and the financial risk of investing in an M&A grew.

Present-Day Outlook

The world has never experienced a pandemic to this scale–at least not in the modern day. It is difficult to predict where things might go next. The economy is truly dependent upon the whims of the virus. Uncertainty means greater financial risk, so companies are wary to invest, especially in large merger or acquisition deals. If the U.S. is hit by a second wave, as some health experts believe we may, the economy could take another downturn, once again washing deal activity down the drain.

However, some industries are still participating in M&As, particularly those minimally affected by the virus. One significant merger that occurred in 2020 was between T-Mobile and Sprint, now referred to as T-Mobile. They closed the deal on April 1 of this year, leveling the playing field between them and fellow telecom giants Verizon and AT&T.

What Does the Future Hold?

Deal numbers continue to trend downward, but M&A experts are looking up and looking back to previous recessions as indicators of how the market may trend moving forward. In past periods of economic recession, like the 2008 financial crisis, M&A action tends to slow down toward the beginning of an economic downturn, but then quickly rebounds as things start to look up (as seen in the chart below).

Via PwC

The same could hold true for the present economic crisis–it’s possible that M&A deals will pick up some momentum as the economy continues to reopen. And because there has been almost a complete standstill in deal activity, this could also mean that there is even greater potential for more M&A deals moving forward as businesses recover and determine the best way to navigate the market. In fact, evidence suggests that forward-thinking businesses that are willing to take their chances with M&As often outperform those companies less willing to take such risks.

How to Prepare

While the future of mergers and acquisitions might not be certain, there are some key items you can focus on if you’re in the midst of a deal, including any rebranding strategies and the overall timing of the deal.

Rebranding has always been tricky but is especially important now as consumers have to reacclimate to the market. They’ve been shut up at home for quite some time; many have been limiting their spending—both online and in-person—for various reasons and may have lost touch with your brand. Businesses must begin to rebuild the trust and relationship with the consumer that they had established prior to COVID-19. This can be even more challenging in light of an M&A. When consumers are familiar with a brand that is absorbed by another company, it is important that the brand quickly adapts to the new situation. Failure to do so could muddle the brand and alienate customers.

While there is no perfect way to predict what direction the world of mergers and acquisitions will take, we can look back to previous recessions with the hope that it will rebound in similar fashion. And, as the world economy does start brushing the dust off itself, businesses participating in M&As must even more carefully consider how branding will impact their customer relationships.

Want to learn more about the future of M&A? Check out our podcast episode on YouTube or the audio version on our website for more info!