Skip to main content

The impact of the global pandemic on M&A

By Duncan Smithson and Dean Kepraios | May 20, 2020

In this, the second article in our series on the COVID-19 crisis, we focus on what serial acquirers are doing to manage through the pandemic.
Risque de pandémie

This is the second in a series of articles focusing on what serial acquirers (corporations who normally do a lot of deals) and their HR professionals who have responsibility for M&A-related work, the “HR M&A Team”, are doing to manage through the immediate crisis. Read the first part of the series here.

We spoke with a number of senior M&A practitioners to get a sense of how they are responding, and summarise their responses below.

HR M&A teams are focused on three broad areas:

  1. Current and recent deal flow
  2. Portfolio and future deal flow
  3. HR M&A capabilities and expertise

Current and recent deal flow

In their initial response, nearly all companies have temporarily paused new deal activity to review current and recent deals with a focus on:

  • Re-validate the strategic rationale for the deal
  • Scope and structure adjustments
  • Price variations
  • Funding mechanisms
  • Go/no-go criteria
  • Time to closing
  • Practical considerations such as employee consultations, regulatory approvals, etc.

Companies are reviewing deals to assess the impact of market movements on earn-outs and retention programs. “We are reviewing the deal construct, including moving more from up-front purchase price to earn-out and adding additional metrics related to business viability, revenue, etc.,” according to one acquisitive global professional services firm.

When the deal logic changes before signature, terminating the deal is hard because there are “knock-on impacts on how to message this with the sellers (especially if we want to retain the ability to go back in the future)”, according to the head of strategy at a real estate and investment company.

For recently closed deals, companies are also reviewing their “100 day” plans. “We had planned to integrate the employees onto our HR systems, plans and programs as soon as possible,” said the head of HR M&A at a global pharmaceutical firm of a recent transformational acquisition. “But now, we’ve decided to delay that for another year, to reduce disruption to our new associates and to reduce the pressure on our own HR team.”

This view is supported by a large financial services firm that is “now considering new integration approaches — such as requiring harmonization with our way of doing things only where it’s absolutely required (e.g., risk and compliance), but otherwise retaining some autonomy in areas such as non-executive compensation and benefits.”

Companies are also re-assessing synergy realization and terminations in the context of the crisis, with a focus on employee experience, alongside culture, brand, reputation and safety considerations. All the companies we spoke with are concerned about the impact of the crisis on their people.

“We’re assessing our ability to extend benefits like our Employee Assistance Program (EAP) to acquired employees prior to the systems cutover and also re-assessing integration costs,” according to a global outsourcing and consulting firm. “There’s an additional focus on human-centered elements to support employees, and we’re adding activities with target employees to help reduce stress.”

“We plan regular check-ins with acquired employees focused on mental health and wellbeing as we all adjust to the new way of operating,” agrees a global technology HR M&A lead.

“We are doing our best to stand behind and support people. Many associates in plants don’t have the option of working from home, we’re putting a lot of effort into physical aspects for those locations — providing protective equipment, hand sanitizer, etc. — as well as emotional and mental aspects, through extending paid sick leave and our EAP program,” according to the head of HR for a large manufacturing company. “And we made sure to roll that out as soon as possible into acquisitions.”

Despite these efforts, engaging people remains difficult.

“On-boarding newly acquired employees is a challenge. For us, Day One used to be a big event. Now, we have travel restrictions, no face-to-face meetings, no welcome and we can’t send IT/Finance to help integrate our acquisitions. Teleconferencing helps, but it’s not as effective when it comes to celebrating new employees,” said the head of HR M&A at a global materials engineering firm.

Portfolio and future deal flow

Companies in industries that have been particularly impacted by the crisis are reviewing their portfolios with a focus on defensive partnerships and even outright sales and divestitures.

“We are anticipating a wave of sales to hit our sector,” said the M&A lead at a travel business.

Companies in the oil and energy sectors are facing similar difficulties, although drop in oil prices pre-dated the current crisis. “Companies are furloughing employees and restructuring with more vigor than originally planned,” according to an oil-field services company. “For some, the crisis may result in the shutting down of a business altogether.”

Industries that are directly or indirectly supporting the response to the pandemic are identifying potential opportunistic acquisitions

On the other hand, many industries that are directly or indirectly supporting the response to the pandemic (healthcare, pharmaceutical, biotech, medical devices, safety equipment and teleworking technology, etc.) are working to identify potential opportunistic acquisitions.

“Beyond the short-term pause, the market may provide opportunities for those with cash to make some well-priced acquisitions,” said the head of HR M&A at a large healthcare and medical products company at the forefront of industry efforts to support governments and essential workers.

“We have cash and are eager to do more deals, we are still looking at acquisitions. We're doing due diligence, but in some cases waiting to see how the market shakes out and watching target company earnings. We intend to proceed with several divestitures this year as planned (assuming there are still buyers),” said the head of corporate development for a global technology company.

HR M&A capabilities and expertise

Like everyone else, corporate HR M&A teams are having to adapt to the new normal. Most obviously, teams are now working remotely running current deals, finding workarounds for on-site diligence, employee onboarding and on-line meetings with target management teams.

Companies are also providing flexibility and support and developing back-up plans in case deal team members need to be changed or workloads shift.

“We’re partnering with our HR organization to leverage local capacity given different timings for return-to-work in different locations,” confirms one global financial services company.

Some companies are re-deploying HR M&A team members to support the COVID-19 response directly.

“My background is in health and benefits,” said an HR M&A expert at a global manufacturer. “Right now while M&A activity has slowed, I’m supporting our benefits team which is under intense pressure responding to the virus.”

There might be some modest upside to the situation.

“The bright side here would be that we can come out of this with some efficiency and improved effectiveness. We have been working on “Global M&A Readiness” for the past year — education, technology, assessment tools, etc., this is providing us a great opportunity to get aligned,” said one HR M&A lead.

The path ahead

The consensus among companies is that they will manage through the immediate crisis, although some industries may not look the same once they emerge. As this evolves, HR M&A teams are preparing for future phases by adapting and reviewing current deals and preparing for opportunistic acquisitions or potential divestitures as well learning to work in new ways.

This transition to back-to-work and learning to operate in the “new normal” post-crisis is the subject of future articles in this series.


Senior Director, M&A

Senior Director, Mergers and Acquisitions
email Email

Related content tags, list of links Article Pandemic Risk and Response
Contact us