In uncertain times, businesses are acting with uncertainty. Across the board, companies are taking mixed approaches to pursue or halt M&As. Boeing abandoned its $4 billion deal to acquire part of Embraer’s jet business. Xerox dropped its $34 billion offer for HP. Most businesses are hoping to test the water before spending any large sums of cash.
Well…maybe except for Big Tech who have buy, buy, buy on their mind.
The Rise in Tech Deals
Although the stock market took a huge dip, the current pandemic fails to resemble the 2001 or 2008 financial crises, where tech companies abstained from large purchases. Instead, recent months depict that tech companies are bidding for deals faster than ever. The Financial Times reported that tech giants such as Amazon, Apple, Alphabet, Microsoft, and Facebook have closed over 19 deals this year.
This is in part due to the large cash reserves that tech companies had in hand going into the pandemic. Public filings show that the 5 big tech companies had over $560 billion in cash and marketable securities at the end of Q1. Most likely, businesses have realized that the current pandemic is here to stay, and have turned to make strategic acquisitions in these uncertain times.
Deviating from the Norm
Is it only Tech? A recent study by the M&A Leadership Council surveyed over 50 corporate executives, from a variety of industries, about their intentions regarding transactions during the pandemic.
Roughly 65% of executives say that they are pausing or altogether stopping current deals, while only 24% say that they are proceeding with deals or expediting the last stages of deals. 11% are unsure.
Of those still pursuing deals, many of the businesses include some of the healthiest and least viable sectors. Dusty Philip, co-head of global M&A at Goldman Sachs notes that industries such as healthcare and tech will use the current climate for growth, whereas less viable sectors such as energy will engage in M&A to survive.
A Future with Far Greater Tech Returns
The Tech sector has the potential to take advantage of diverse M&A relative to other sectors. As a result, Big Tech may come out of the pandemic in a highly strategic position that would be beneficial for the technology industry. The M&A downturn post the 2008 financial crisis revealed that companies that made strategic investments throughout the crisis generated superior returns during and after the crisis.
Although many companies have hit pause on many deals, businesses with large cash reserves will be able to strategically leverage M&A in these uncertain times and come out of this pandemic stronger.