After months of uncertainty due to COVID-19, businesses are looking to mergers and acquisitions (M&A) as a key strategy for moving past the pandemic-related turbulence and securing success for the future.<\/p>\n
\u201cAt the end of 2020, clients had a much better handle on the impact of the pandemic, where their businesses stood and the opportunities ahead,\u201d says Zachary Chubb, managing director of the food and beverage group at City National Bank. \u201c<\/span>Many of them shifted their focus from preparing for and managing the impact of COVID onto positioning themselves to capitalize on the new normal.\u201d<\/p>\n Positioning yourself for \u201cthe new normal\u201d could mean acquiring or collaborating with other firms in order to attain competencies that the post-pandemic market demands. For example, in the food and beverage industry, the new normal includes new levels of digital adaptation, direct-to-consumer products and a focus on health and wellness, Chubb says.<\/p>\n Chubb and other experts expect to see strong post-pandemic M&A activity as a result. In response to the lifting of pandemic restrictions and financing availability, the first half of 2021 marked \u201cone of the longest M&A cycles we’ve experienced in recent years,\u201d says Vito Sperduto, managing director and co-head of Global Mergers and Acquisitions at RBC Capital Markets. Busi<\/span>ness leaders interested in acquiring, merging or being acquired will be more successful if they understand current markets and how to position their companies for successful M&A transactions.<\/span><\/p>\n There are a number of financial reasons why companies are considering M&A scenarios.<\/span><\/p>\n First of all, companies now have more cash on hand, Sperduto says.<\/p>\n \u201cAfter the 2008-2009 financial crisis, companies started hoarding cash,\u201d he explains. \u201cCash on balance sheets has been at record levels each year since that financial crisis. In fact, in the first half of 2021, cash on balance sheets of the S&P 500 had more than doubled since the 2008 crisis.\u201d<\/p>\n Not every opportunity is right for every company. Forming an alliance or partnership with another company may be a better choice for some companies’ growth goals. For others, simply staying the course and growing organically is ideal.<\/p>\n \u201c<\/span>A merger or acquisition is generally an accretive growth strategy for companies looking to drive innovation quickly and increase scale,\u201d Chubb explains. \u201c<\/span>Creating a partnership, on the other hand, allows the two businesses to collaborate before making a committed step forward.\u201d<\/p>\n To determine which growth strategy is best for your company, figure out what your customers want and need, Chubb advises. From there, decide whether you could meet that demand more effectively with a partner, through an acquisition or through augmenting existing capabilities internally.<\/p>\n Determining whether to pursue growth through an acquisition or merger depends on your goals, risk tolerance, and the financial implications, Chubb says.<\/p>\n Through a partnership, companies may not get the full financial or operating benefit of acquisition right away, \u201c<\/span>but you do get the chance to leverage and benefit from each other’s capabilities,\u201d he says.<\/p>\n Acquiring a business in today’s climate may look different from a few years ago. The virtual environment forced by the pandemic, for instance, caused an incredible amount of acceleration across multiple different business trends in 2020.<\/p>\n \u201cWe’ve seen that those businesses that are well-positioned and resilient are able to quickly adapt, regardless of whether employees are working at home or on-site,\u201d Sperduto says.<\/p>\n If you’re looking to make an acquisition, there are a few tips to keep in mind, including:<\/p>\nWhat’s driving the trend in mergers & acquisitions?<\/h4>\n
But should you jump on board?<\/h4>\n
Tips for purchasers<\/h4>\n