The Covid-19 pandemic has changed many industries and areas of activity, including where and how much is being invested. Mergers and acquisitions make up the most visible and often financially large part of investments. There was a break in this area last spring, but business resumed very soon, and many experts point out that even a kind of asset purchase boom is expected after the pandemic.
IN SHORT:
- 2020. The number of mergers and acquisitions decreased in the first half of the year.
- 2020. In the second half of the year, business activity returned.
- The Covid-19 crisis did not reduce investor finances; they invested in promising industries.
- Experts predict a future asset purchase boom.
- In the Baltic States – similar trends as in the world.
- Oaklins: The biggest threat to attracting investment in the future is slow vaccination.
Facts and figures: Buying and selling a business is gaining momentumInguna Ukenābele00:00 / 02:49
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Organization for Economic Co-operation and Development (OECD) data shows that in the first half of 2020, the number of mergers and acquisitions in developed economies decreased by 16%, but their value by 12% compared to the second half of 2019. In turn, the number of transactions concluded in developing economies decreased by 22%, but their value – by 18%. Although data for the year as a whole have not yet been compiled by the OECD, developments in the area of acquisitions and divestitures suggest that, as in the case of investment as a whole, the situation has picked up and resumed in the second half of the year.
Acquisition of companies from the sofa
The fact that the pandemic has only taken a break in this area is also confirmed by the European Commission’s agenda, as mergers and acquisitions above a certain amount and which may affect the European market as a whole must be approved by the European Commission. Only at the beginning of this year, decisions have been taken on six large-scale transactions. But at the end of last year, the European Commission approved one of the loudest deals of recent times, which will merge the Fiat and Peugeot groups into the world’s fourth largest carmaker.
Compiled by consulting and auditing company PricewaterhouseCoopers (” PwC ”) data Mergers and acquisitions around the world show that the biggest break came in the second quarter, when the pandemic imposed restrictions and there was a great deal of uncertainty about how the various industries would be affected.
However, already in the second half of the year, business activity returned.
Furthermore, the merger between the Fiat and Peugeot groups is by no means an exception. PwC estimates that there were 57 so-called “mega” deals in the world in the second half of the year, valued at more than five billion US dollars.
Also in the Baltic States, investors will soon get used to the new working conditions. “Of course, the first two months were a shock and it was not clear how to buy a company while sitting at home? However, we had clients who then went through all the negotiations with Zoom and the transactions took place, ”Valerija Lieģe, a partner of the investment consulting company Oaklins in Latvia and a representative of the global executive committee of Oaklins, told LETA in an interview.
The main reason for the rapid recovery in investment in acquisitions is the fact that the Covid-19 crisis caused great instability and disrupted many commonplace issues, but, unlike previous financial crises, did not reduce the funds available to a number of potential investors.
Therefore, as soon as it became clear which industries and companies are viable even in a pandemic, investment transactions also became more active.
Predicts growth
In addition, a number of experts predict that mergers and acquisitions will take place even more vigorously this year than in the second half of last year.
“Covid-19 gave companies a rare opportunity to look into their future, and many didn’t like what they saw. Accelerating the digitization and transformation of your business immediately became a top priority. Mergers and acquisitions are the fastest way to achieve this. This creates a highly competitive environment for the right deals, ”said Brian Levy, a partner at PwC US.
Given that the changes brought about by Covid-19 made it quite clear what skills, resources or technologies are lacking to enable businesses to operate successfully in a more digital environment where teleworking, shopping and services are left to remain, PwC predicts that the biggest demand will be directly for technology companies and assets. Acquiring and adding them will allow many companies to fill the “holes” much faster than gradually increasing their capacity. Competition for the acquisition of such assets, in turn, could significantly drive up prices.
In turn, ‘less coveted’ assets may therefore experience a fall in prices.
This may be particularly the case for companies that have been adversely affected by a pandemic or whose business model no longer looks particularly viable in the future.
Similar trends in the Baltics
The Baltic States have also seen the same trends in mergers and acquisitions as elsewhere in the world. A survey conducted by Oaklins shows that 148 transactions were concluded in the Baltics last year, which indicates high activity. The restrictions caused by the pandemic reduced the number of transactions by 30% in the middle of the year, but the number of transactions increased in autumn and winter, so the total number of transactions decreased by only 13% during the year. The total value of transactions in the Baltic States last year exceeded 1.4 billion euros. In addition, the largest number of transactions has been in the information technology sector.
“Of course, it is clear that transactions in sectors such as hotels, catering simply stopped, because it is still not clear how the situation in these sectors will develop after the pandemic, because it is not known how people’s habits will change. Therefore, yes, there are industries where transactions have stopped at all, but in many other years after the decline in the first months of the pandemic, the activity has returned to normal and business activity has also returned, ”admitted Valērija Lieģe.
She also emphasized that there were very few deals that could be described as “rescuing” the crisis caused by the pandemic. A typical example of such a transaction was the investment made by the Latvian state in the capital of the airline “airBaltic”, but it is by no means that such assistance from shareholders or new investors would have been necessary for many companies. At the same time, companies in a very bad situation are more likely to start insolvency proceedings in the future than sales.
The representative of “Oaklins” calls the sluggish vaccination process the biggest threat to attracting investments in the future.
“If at the beginning of the pandemic the Baltic states looked very good against the background of the rest of Europe, then now due to the delay in vaccination we look much worse than others. This is a bad sign, because it means that we will be one of the last to get out of the limits. Also from the investors’ point of view, it is now much better to invest in Poland than in Latvia. Therefore, the fact that we are unable to cope with the vaccination program and have missed everything we could have missed is a big disadvantage for us. Of course, those who are already working here are accustomed to the situation and will continue to work, but it is difficult to hope for a new investment boom due to this delay, ”concludes Valērija Lieģe.
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