COVID-19: the Global Outlook of Cross-Border M&A

Daniel Casares-Lauritsen
Daniel Casares-Lauritsen
May 4th, 2021

The impact of Covid-19 was felt differently across Mergers & Acquisitions (M&A) worldwide, due to the heterogenicity of this complex area of business and uneven conditions throughout geographical regions.

Overall, M&A activity declined in the first half of 2020: both deal value and volume contracted rapidly in the wake of Covid-19, with the former dropping by 49%, and the latter decreasing by 22% compared to 2019.

The pandemic caught businesses unprepared, replacing their confidence with uncertainty, and highlighting the urgency to implement strategies that ensure efficiency, scale and cost-reductions, together with more robust and cautious tactics. Despite the initial downward trend, in the second half of 2020 global deal volumes soared by 29%, and deal values went up by 156%, portraying a positive outlook for 2021. As the Covid-19 pandemic evolves, M&A activity is forecasted to boost due to several factors explored below, with companies potentially turning Coronavirus drawbacks into valuable opportunities.

On a global scale, the disruptions caused by COVID-19 coupled with pre-existing market volatility make the future of FDIs and cross-border deals uncertain. At the same time, the worldwide vaccination rollout gives good reasons to believe that new M&A opportunities will emerge post-lockdown. Not only has the stress-test ensured companies seek to invest in strategic-planning, credit-control and succession-planning, but it has also validated certain industries’ insulation from global systematic-risks – and others not. Furthermore, an argument can be made that the total impact resulted in a correction of assets’ valuation – especially those in distress, making them more attractive to investors with higher risk-appetite and resulting in a great change of asset-ownership. In turn, these investors will be poised for lucrative capital gains fueled by FDI-policies, low interest-rates, emerging markets and, ultimately, a cash-rich consumer and institutional market.

Although governments and organizations worldwide reacted similarly to the COVID-19 emergency, thus seeing similar impact on global M&A activity, some regions recorded specific trends only seen in those areas. Overall, Europe, the Middle East and Africa (EMEA), and the Americas experienced similar dynamics, however both regions were outperformed by Asia Pacific, which proved more resilient and reactive to the crisis.


EMEA recorded little M&A activity in the first half of 2020 due to the high level of uncertainty in the market, combined with low business optimism and confidence. Nonetheless, governments intervened with generous stimulus packages and programs for businesses, including support for employees and payroll and creditor forbearance schemes, allowing many companies to survive the pandemic and reducing the expected number of distressed acquisitions.

More so, businesses started being more precautious, intensifying due-diligence processes, resulting in deals closing at a slower pace. Companies are becoming more reliant on representations and warranties insurance, adopting defensive strategies to avoid disruption and better position themselves in the future. On the other end of the spectrum, recent announcements and planning of various Initial Public Offerings (IPOs) demonstrate that investors are actively seeking opportunities and that there is money in the market; however, IPOs may offer owners an alternative to M&A deals as an exit path, thus negatively impacting on future M&A activity.


In the Americas, particularly in the USA, due to the uncertainty associated both to the pandemic and the level of government support, M&A activity has seen an increase in distressed transactions, including debt restructurings, defensive M&A deals, such as liquidity planning, and other transactions aimed to strengthen balance sheets. Whilst in the second and early third quarters of 2020 companies were struggling to cope with the crisis, summer deals market activity accelerated. Impatient private equity investors started to actively seek opportunities and stable banking institutions offering cheaper financing.

Two dynamics played a crucial role in the M&A landscape in the US: the 2020 presidential elections and the threat of tax rates increase. Consequently, the market experienced an increase in the sale of closely-held businesses, corporate divestitures and public company deals, as well as consolidation in various sectors to reduce costs and drive synergies, gain market share, acquire new customers and/or geographies, and otherwise strengthen one’s market position.

According to reports, similar to Europe, companies in the Americas are implementing new strategies to prevent further deterioration and anticipate potential issues, appointing fewer professional service providers to streamline transactions and make them more cost-effective. Once more, parties to transactions are strengthening their due-diligence processes, representations and warranties insurance given the uncertain and, to some extent, unpredictable environment. Lastly, since the third quarter of 2020, the American deal market has been very active, with an increase in IPOs, including acquisitions using special-purpose companies (SPACs), reflecting a positive trend towards market activity recovery following a period of deadlock. More SPAC activity is expected in 2021, especially involving assets such as electric vehicle charging infrastructure, power storage and healthcare technology.

Asia Pacific

The impact of COVID-19 on Asia Pacific has been mixed, with countries such as China, India, Japan and Singapore recovering sooner than others, like Australia. Nonetheless, according to Ernst & Young, the region has demonstrated resilience during the COVID-19 crisis, reporting a drop in deal volume of only 8% year-on-year, compared to double digits in the Americas (20%), EMEA (15%), or other markets. Moreso, M&A activity has been increasing steadily in the second half of 2020, recording the highest third quarter in the same year, driven by domestic combinations and technology deals. Countries that received more sizeable economic support from their governments saw a decrease in distressed M&A activity, while the lack of similar governmental programs in other countries led to bankruptcies and restructuring transactions.

Not all industries recorded the same degree of disruption following the COVID-19 outbreak. Depending on the sector and type of activity, as well as the level of one’s market capitalization, some businesses experienced more financial distress than others.

Travel & Hospitality took the hardest hit as demand dropped severely as a result of lockdowns, leading to a decrease of 49% in market capitalization in the first 25 days of the COVID-19 crisis. Uncertainty towards recovery could trigger solvency challenges in the industry, which will likely open up the potential for consolidations, restructurings and bankruptcies.

Banking & Capital Markets recorded an initial market capitalization loss of 31%, followed by the energy sector (-24%), where the combination of a drop in demand and the OPEC supply shock sets up potential liquidity needs.

In comparison, Technology & Telecom saw the highest growth in deal volumes and values in the second half of 2020 compared to the second half of 2020: technology deal volumes increased by 34%, and values went up by 118%, while telecom deal volumes and values soared respectively by 15% and almost 300%, due to three telecom megadeals.

It is likely that “weaker players” that had previously relied on government support or cash reserves will experience more financial distress as the COVID-19 pandemic evolves and financing packages phase out, leaving them ripe for takeover or inevitably leading to consolidation or exits. On the other hand, well capitalized companies operating in unaffected sectors are expected to engage in opportunistic transactions involving distressed assets, so as to bolster their positions, acquire new or complementary skills, technologies and products, or gain some valuable market share. Finally, data protection and related regulations, combined with geopolitical issues and trade instability, will also impact on the future M&A landscape.

While the Covid-19 outbreak initially fragmented the global economy, with most deal-making coming to a standstill, the outlook for 2021 indicates conditions are right for a busy year for M&A. In fact, by fall and winter, the pace of M&A announcements exceeded historical averages, and in the fourth quarter alone, a record 1,250 global M&A transactions were announced, totaling more than $1 trillion. Moreso, in the second half of 2020 the number of global megadeals (value of over USD 5 billion) more than doubled (from 27 to 57), from USD 266 billion to USD 688 billion. Finally, several key trends can support robust activity in 2021: Companies will focus more on deploying capital to accelerate growth, gain scale and digitize their businesses; markets are supportive with a historically low cost of capital; and vaccinations increase can improve business conditions in COVID-impacted sectors as well as boost the confidence of CEOs, investors, and consumers.

Governments and central banks have had to think strongly about the link between FDI and their fiscal and interest rate policies and are now more than ever looking to favour protectionist measure in the proliferation of VAT, withholding taxes, and interest-rates – in a classic “global-chess”, defending local vendors and attracting foreign capital with fiscal advantages and low central bank interest-rates, whilst balancing an incoming inflation.

"The COVID-19 pandemic has greatly influenced corporations worldwide, moreso in the M&A space. At FLI, we have seen various changes in M&A across jurisdictions and verticals, some more heavily impacted than others. But as companies move a new normal, cross-border M&As seem to be a preferred strategy for companies looking to get back on track in the post-pandemic environment - assessments on FDI, fiscal-policy, interest-rates, and asset-valuations should be a regular discussion point between legal and commercial teams." - Daniel Casares-Lauritsen

• M&A is still a viable strategy for value-creation so long as the deal-premia is controlled and moderate so as not to supersede the discounted cashflow value of from the future through inflated asset-valuation.

• Investors may want to consider Corporate Venture Capital and Open Innovation as a good hedge against the high M&A costs to establish a useful pipeline for innovation, and intellectual property (IPRs).

• Thorough deal-prospecting and pipeline analysis should be considered in conjunction to corporate strategy and evaluated against the jurisdiction of targets in light of new FDI legislation - both risks and opportunities therein.

• Running a robust and frequent legal-horizons framework on the parent's organizational structure against jurisdictions of operations, derivative industries, client-analysis, and regulator and legislative bodies.

• Including legal as a source of value, both offensive and defensive, into strategy-forming committees is useful to gain a risk-assessment and caliber risk-appetites and thresholds for the legal department.

• Consider CAPEX tax-deductible domestic policies as a means of optimizing tax and consider incentives for expenditure.

• Tax-consciousness and interest rates may be serious government and bank levers to prompt the use of capital and inject cash into the economy, however, the initial shocks of COVID-19 on M&A and valuations more generally may have subsided and distressed assets or the previous short-term asset devaluation may be reversing – thus even though capital may be cheaper to source, it must be noted that assets are now equalling book values and in some instances aggressively surpassing them; such as in technologies, software, and high R&D-related businesses.

It is clear that the pandemic caused disruption and its effects have been felt far and wide on various levels, for both businesses and individuals. However, organizations worldwide are now learning the importance of planning and anticipating hurdles through more robust strategies. As the deal-making market continues to present opportunities, companies should focus on becoming sustainable over the long run, integrating the necessary technologies and digitalizing their activities.

M&A transactions might be particularly useful for companies looking to bridge gaps in resources, skills, technology or those looking to increase their market share, expand to new geographies and increase their client base. Robust due-diligence and clear strategies will also be crucial for companies' futures, which will need to be financially savvy, account for risks and identify solutions in advance, so as to execute efficient and profitable deals in a context of uncertainty.

From an external counsel point of view, we have advised clients on the full range of M&A transactions, from mergers or acquisitions to strategic joint ventures or complex cross-border deals that require local knowledge nuances. Successful multijurisdictional projects are based upon a deep understanding of each and every area involved, industry dynamics in a local environment and a very clear and accurate understanding of local legislative requirements and commercial issues in those respective jurisdictions. Having a local team on the ground in each target area involved in the cross-border deals allowed our clients to setup a defined investment and growth strategy in a few easy steps, but also, to ensure that local laws and regulations pose no surprises.

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Daniel Casares-Lauritsen

Daniel Casares-Lauritsen

Daniel has significant experience in advising clients’ corporate portfolios and optimizing multi-jurisdictional legal projects. His mission is to enhance clients’ leverage in complex multi-stakeholder deals through the power of FLI’s business model. He has also supervised the development and roll-out of FLI’s LegalTech Apps/PWAs, including FlightOne and FLInstitute in order to retain counsel in various jurisdictions, as well as promoting client co-creation and corporate compliance. These elements may include, but are not limited to: M&A, Entry/Expansions/Restructurings, VC/CVC/PE/Family Offices and Wealth Management, Compliance & Investigations, FDI, Import/Export Trade Regulations, Tax, Corporate Governance, and more.

Daniel regularly provides insights on industry trends, economic and legislative opportunities and threats, as well as strategic avenues for FLI accounts in conjunction with its subject-matter experts.

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