As boards and shareholder move their attention towards a post-Covid restart, M&A can play a vital role in a recovery or to make up lost group. Together with the disposal of non-core businesses to raise funds, improve liquidity or refocus the portfolio, we expect to see an uptick in mergers and joint ventures.
In many industries, the new world will result in a reduction in market size or lower volumes for a sustained period of time. For others, margins will be squeezed and a need to reduce cost will be critical for survival and profitable growth. The option to transfer certain businesses in to joint ventures with third parties or indeed to merge with competitors should be considered.
Irrespective of the scale of businesses involved, a merger of competitors will present the opportunity to achieve synergies, both on the revenue and cost side. Similarly, from an operational perspective, a merger can often provide the opportunity to reduce capacity, thereby rightsizing for the market.
Whilst valuations remain challenging and the need to assess synergy value and prepare a detailed road map to post-merger integration is critical to deliver value, the rewards can be significant.