COVID-19 and deals: Creating value in a transformed world
July 28, 2020
As companies emerge from the immediate COVID-19 crisis and begin to rebuild for the future, we’re expecting to see a sharp rise in deals activity for a range of reasons. Some deals will be a matter of survival. Others will be purely opportunistic and tactical, as weaker competitors flounder and new opportunities emerge. But many will be driven by a need to adapt quickly to a future that looks very different from before.
The first few weeks of the crisis saw companies working to triage the problems created by the pandemic and take steps to preserve the value that was left in the business as best as they could. Following this Repair phase, some are now moving onto recovery and many will look to mergers and acquisitions as part of their strategy to create and recreate value. But even while grappling with the most intense crises they have ever experienced, it’s crucial that leaders take the time to stop and think strategically.
The COVID-19 pandemic has fundamentally transformed the business world. Consumers’ long-standing habits have been broken and digitisation in almost every sector has accelerated. Social distancing has forced changes on some businesses that will last an indeterminate length of time and business and operating models will need to adapt, which requires CEOs to Rethink their strategy for the post COVID-19 world and Reconfigure their businesses accordingly. As part of this, business resilience and Environmental, Social and corporate Governance (ESG), has been brought into sharp focus.
There will be lasting implications for specific sectors: The banking sector is seeing an acceleration of the trend towards a cashless society, for example. Meanwhile consumer goods organisations have noted that consumers are more willing to engage with local brands that demonstrate the right values. The implications for other sectors are complex; within the media sector demand for streaming services has escalated while sales of newspapers plummeted – but across all media outlets, advertising revenue has fallen sharply.
The way in which a business makes money in this new world won’t necessarily be the same as before. Different skills may be required, technological transformation will need to accelerate, and supply chains may need to be adapted or localised. The disruption caused by lockdowns in other nations has persuaded some companies to consider reshoring critical functions or capabilities in order to mitigate future risk. And given the sudden rise in home working – and its apparent success – real estate strategy and the employee value proposition will need to change.
In other words, strategy must be reimagined to create value post COVID-19 – and then made concrete through the re-evaluation of product portfolios and reorganisation of business and operating models. Significant reconfiguration may be needed to create a resilient, future-proof business. The stakes are high and the risks of taking a wrong turn have risen considerably.
Building value in this changed world will take a lot more than returning to a more efficient Business As Usual. Effective, value-creating deals, informed by detailed strategic analysis of the changing market and trends in consumer behaviour, will be an important competitive differentiator. The pressure to act quickly will be intense and due diligence is likely to be short and sharp. This is a risky environment but organisations that keep their attention focused on value creation, in the deal and beyond, will be best placed to succeed.