Why this isn’t 2008 again – and what that means for deals

October 22, 2020

by Hein Marais Global Head of Value Creation, PwC UK

Email +44 (0)7740 064729

There’s no doubt that the recovery from the impact of COVID-19 will be led by deals. The pandemic pulled the handbrake on deals across the world; deal volumes fell by 13% in the first half of 2020 compared with a year earlier. But the trend reversed almost immediately and there have already been signs of a strong uptick in M&A activity over the summer. 

The contrast between the deals environment in the months after the global financial crisis (GFC), when the volume and value of overall deals worldwide fell sharply, is stark, as we discussed at a recent FT Live event. But when you look at the deals landscape today, it’s not that surprising, for three reasons:

  1. There is much more money available during this crisis than during the GFC. Banks are stronger, governments are stepping in with support, access to debt is good, and private equity firms, according to Preqin, have $1.5trn in dry powder available to invest.
  2. The fear of missing out is compelling dealmakers to act. Investors who were active during the GFC achieved a rate of return on their investments of around 20%, compared with 15% among those that took a step back.
  3. The pandemic has shifted the fundamentals of many businesses. Consumer habits have been irrevocably broken and digitalisation has accelerated, and business models and supply chains need to keep up. The result has been a far closer focus on portfolio strategy. Companies are looking for assets or to acquire capabilities that will protect their future, and for deals that will strengthen the resilience of the business and the supply chain – and they are ready to divest businesses that may not thrive in the future.

The market is never going to be the same again. Wholesale change is underway in some sectors and businesses must adapt. Most have already worked hard to repair their business and mitigate the immediate damage caused by the pandemic. It’s now time to rethink what their business structure will look like in the new world that’s emerging, and reconfigure operations, skills, the supply chain and even the business model that’s needed to succeed.

The risk is that the pressure to move quickly can lead to costly mistakes. The government support that has flowed freely during the first months of the pandemic will at some point dry up, and that will inevitably trigger a wave of distressed sales and deals driven by an urgent need to raise cash. Deal fever could take over – but we know that opportunistic deals don’t perform as well as strategic deals.

Having a value creation plan has never been more important. Our data shows that only 61% of buyers believe that their last acquisition created value; given the chance to do the deal over again, two-thirds said that, above everything else, value creation would be the priority.

  • So, in the coming weeks and months, there are three important points to remember:
    Take the time to stop and think strategically. What will your business need to look like post pandemic? And what do you need to achieve that?
  • Reset your expectations and beliefs. Deals strategy isn’t about getting the business back to what it was; it’s about getting it where it needs to be.
  • Put value creation at the heart of every deal – and even if there is no deal on the immediate horizon, develop a value creation plan anyway. Always be ready to transact.

The pandemic will have binary consequences for deals – there will be clear winners and losers. Those that prioritise value creation will have the best chance of success.


by Hein Marais Global Head of Value Creation, PwC UK

Email +44 (0)7740 064729