Mergers & Acquisitions in a Downturn: Lessons from the Last Financial Crisis

Why Waiting for the Economy to Return to Normal May Be More Dangerous Than You Might Think

Corporate Finance & Restructuring

November 30, 2020

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In the Great Recession that started in 2007, the near collapse of the banking sector led to severe contractions in economic output across the global economy. Share prices collapsed in Europe and other regions, as did the volume of M&A activity.

However, something interesting happened to those companies that acquired targets in the downturn – they delivered positive returns to their shareholders.

In this article, we explore the reasons why, and ask what lessons learned buyers can apply today for the COVID-19 recession.

The last global economic crisis began in 2007 with a sharp Gross Domestic Product (GDP) reduction, and consistent growth did not return until 2013. The Great Recession of 2007 to 2009, caused by a banking and financial crisis, made a dramatic and long lasting impact on economies around the world. Although the source of crisis was the financial sector, the sudden reduction in banks’ capacity and appetite to lend rapidly impacted many other sectors, asset values, house prices and consumer confidence. It took until 2013 for consistent GDP growth to start again across Europe. This was also the year that UK GDP finally recovered to pre-crisis levels.

Not all recessions are created equal. Although there are parallels with the Great Recession, buyers should consider how the COVID-19 pandemic will impact acquisition targets for example; (i) COVID-19 will cause fundamental disruption and change in certain industries, which will not disappear when the recession ends (ii) there has been a shift to digital and online provision of goods and services, with less activities done face-to-face (iii) technical and cultural barriers to remote working are being lifted.

These changes will be positive for some sectors (logistics, grocery) but negative for others (business travel, restaurants).


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