The COVID-19 crisis has triggered the reassessment of business strategy across most, if not all, sectors.
But how to make sense of it?
From discussions with our client network we see the strategies falling into two groups with the following attributes:
- Offensive M&A plays to capitalise on changing demand drivers:
- Moving into new markets
- Skilling up to deepen an existing market presence
- Strengthening an existing competitive position
- Merging to strengthen the capital and cost base of the partners
- Defensive M&A plays to focus on core strength:
- Spinning out non-core services
- Spinning out higher risk/higher return activities to re-balance sustainable margin
- Restructuring the balance sheet through selective asset sales
- Partnering, where permissible, to restructure the supply/value chain
How could these drivers manifest themselves in business sectors globally?
Our network of clients, capital providers, and other advisors point to the following sectors:
Opportunities for offensive M&A:
- Infrastructure engineering – as governments stimulate the sector to counter the economic downturn
- Mining and mining services – similar to the above but as ‘fuel’ to economic growth
- Building services – interior design and construction, to address changing workplace practices
- Health – to address the increased demand for tele-health and related services
- Food/produce – building economic resilience in the complete supply chain
- Technology/remote working – both in terms of hard and soft applications, e.g. hard technology to make efficient working practices, but also softer/HR practices affecting culture and accessing previously unavailable talent
- Consulting – change management and organisational re-design specialists with strong social and community awareness (EQ/SQ capabilities)
- Commercial real estate – serviced/co-working offices being relocated to respond to a shift away from CBD concentrations. Possibly working in tandem with large organisations instigating hub and spoke real estate strategies
- On-Shoring – inverting of many previous trends to now acquire geographically (or jurisdictional) relevant local service providers to reduce business risk
- Retail – a greater push into e-commerce – and acquiring capabilities to enact successfully. So not just tech platforms but distribution warehouses, robotics, delivery-collaborations, etc.
Opportunities for defensive M&A:
- Aviation – consolidation and merger of the sector to strengthen balance sheets and manage operating costs
- Hospitality – refocus on competitive positioning and meeting changed demand characteristics, regaining direct customer relationships, restructuring and refinancing through mergers, disposals and acquisitions, potential for new collaboration models between real estate owners and brand owners
- Commercial real estate – dispersed companies (e.g. banks) with hub-and-spoke facilities (i.e. large downtown offices and many regional branches) restructuring and decentralising their office network to enable and empower branches within their customer communities.
- Retail – disposals and ‘re-purposing’ of current spaces (e.g. Canada’s largest mall in Toronto – just 25% of tenants paid their rent in April!). Finally, a big push to e-commerce and acquiring the capabilities to enact successfully. So not just tech platform, but distribution warehouses, robotics, delivery-collaborations, etc.
- Diversified conglomerates – re-balancing portfolios to increase consistency and decrease variance of returns, by either selling to PE, trade sales, de-mergers etc.
There can be no doubt that the economic uncertainty caused by the COVID-19 crisis is making business leaders more cautious. There is a trade-off between holding investment capital in the short-medium term and remaining sustainably competitive and profitable in the medium to long term. Like many M&A opportunities, whether you are a buyer or seller, it comes down to timing. Researching, developing options and planning now will be time well spent.
If you would like to discuss your plans for your business, we are offering a one-hour complimentary call with any of our experts. You may book a call here.
Managing Principal, North America
Andrew brings over 25 years of expertise having both professional firm and client-side industry experience. Andrew was formerly Vice President of consulting & deals for PricewaterhouseCoopers (PwC), as well as having held senior client-side roles with enterprises such as IBM, British Telecom, Shell, and Sapient.