The stresses of the pandemic have created a Darwinian struggle for survival that will provide an unparalleled opportunity for stronger firms to acquire weaker rivals, resources, and assets at reduced prices. Kearney’s report, Global Trends 2020-2025: The Great Shakeout, asserts that size will matter in these circumstances, with companies with deeper pockets likely to weather the storm better and expand their market share as a consequence.
Kearney expects to see stronger companies in sectors like e-commerce and Big Tech going shopping for rivals and new technology in an effort to streamline processes and improve efficiency. What’s more, private equity firms have over £1 trillion in capital to spend on deals within the coming years, across sectors. Consolidations will likely be the way forward for many industries weakened by the pandemic and these are already rising globally; for example, Malaysian hotel conglomerate Berjaya Group acquired a majority stake in Icelandair Hotels in April 2020 after receiving a 10 percent“COVID-19 discount”.
However, the road ahead is not without obstacles. An M&A wave could lead to higher prices or fewer market options, and would likely boost government efforts to strengthen antitrust and foreign investment laws. Distrust of Big Tech is a major issue, with key economies like the US, EU, and Brazil all intensifying their scrutiny of leading industry players over the past year.
Angus Hodgson, Partner at Kearney, comments:
“We saw global M&A activity rebound in the second half of 2020 making it the busiest year on record and this trend looks set to continue. COVID-19 has left many businesses weaker and in the sights of stronger rivals looking to grow. With a vaccination rollout suggesting an end to the worst of the pandemic this year and potential return to more ‘business as usual’, we expect to see an immediate increase in M&A moves post-COVID, as firms look to drive growth and achieve cost efficiencies.
“Players with long-term strategies and strong balance sheets are most likely to win in this wave, which could create a shift of market power in certain sectors, including healthcare, airlines, grocery, retail and energy. However, firms must be mindful that a combination of anti-monopoly sentiment and protectionism could dampen inorganic expansion activity.”