Economic instability may have you instinctively hunkering down to play the waiting game, but a historic look at mergers and acquisitions tells us that may not be necessary. While large-scale economic uncertainty can bring risks and disadvantages, it also creates new opportunities primed for utilization. Uncertainty may become our new normal, given the rise in tariffs, geopolitical tensions, and shifting legislation. Where does this uncertainty lead us?

Variables

Market Conditions

Economic instability and the resulting decline of business valuations, a volatile stock market, and the scarcity of financial resources, like loans, don’t create a very welcoming environment for M&A transactions. That being said, companies with access to capital and the proper paperwork to prove it have the chance to make bold moves among the chaos. Tightened credit markets lead to a decrease in mergers and acquisitions, but access to liquid assets can circumvent this issue. 

Private Equity 

Economic uncertainty creates a niche for private equity groups (PEGs) to fill. PEGs have access to a large pool of capital compared to individual business owners. In times of economic instability, private equity groups have an integral role in driving M&A transactions. Their resources allow them to purchase businesses during times of economic instability to sell later. This gives business owners looking to exit an option, although the sale price may not match their business valuation pre-economic shock.

Shifting Regulations

It’s essential that executives and business owners understand shifting regulations, especially during times of economic instability. Global conditions can change rapidly, resulting in international, national, and even state-wide regulatory changes. Depending on the change of regulations, there could be hidden opportunities within them. Stay informed to avoid potential problems and maximize benefits.

Historic Impacts

Disney & Marvel (2009)

On the heels of the 2008 Great Recession, Disney purchased entertainment titan Marvel for approximately $4 billion. While experts at the time weren’t confident in Disney’s acquisition, their creative talent, combined with Marvel’s IPs, created one of the most profitable franchises in history. In 2020 alone, Disney/Marvel grossed $2.8 billion on one film, Avengers: Endgame. 

Salesforce & Slack (2020)

Amidst the COVID-19 pandemic, the customer relationship management platform Salesforce acquired Slack, the team communication platform. This nearly $28 billion transaction was well-timed with the rise in remote work. The union between companies rocketed them to the top of the tech industry, allowing them to compete with the likes of Microsoft Teams.

Uber & Postmates (2020)

Uber had another well-timed COVID acquisition with their purchase of Postmates for approximately $2.65 billion. This allowed Uber to reach new customers and geographical regions. The increased audience alone would have led to a rise in revenue, but the COVID-19 pandemic raised it that much more. 

Conclusion

Economic instability can be a game-changer for mergers and acquisitions. Playing it safe and waiting for the economic shock to pass may not be the best option for you. Bold, informed decisions could be the thing that revitalizes your business. If you’re interested in learning more, contact an expert M&A advisor at Stony Hill Advisors today!