Identifying strategic fintech M&A opportunities during the pandemic

From the internet bubble burst at the start of the millennium to the global financial crisis in 2008 – and now COVID-19 – building an innovative business and securing mergers and acquisitions during global crises seems out of the question, considering the impact it had – or will have – on the economy.  

Reports reveal that the UK is heading into the deepest recession of any major global economy. As today’s economic environment remains uncertain, many executives have planned to put a short-term pause on deals to evaluate the potential market recovery timeline or to delay parting with capital.

While the economy and business operations have undergone a rapid transformation, achieving a successful M&A transaction during a crisis isn’t too dissimilar to achieving one during prosperous times. It all boils down to creating a strong and inspiring shared vision and correctly positioning the company so that it is attractive to the acquirer.

Searching for transactions offering value and competitive advantages 

The analysis shows a quieter but still active market. A report by PwC focusing on Belgium and Netherlands states deal activity will not come to a grinding halt, but 2020 is unlikely to top the 2019 peak in terms of deal volume in the M&A market. 

Acquisitions during an economic downturn can actually create greater value and impact. Confidently stable companies such as Google Cloud, Nestle SA and BlackRock have all publicly stated they are open to acquisitions despite the uncertainty created by the pandemic. 

Innovative businesses should be following this lead and taking possible M&As into consideration when discussing their COVID-19 strategy. The answer isn’t always to abandon deals; renegotiation or pursuing new projects should also be on the table. 

Ultimately, operating in unknown territory requires smart forward-thinking actions. In some cases that should be investing cash rather than saving it. Those in a strong financial position should be looking for targets that can enhance competitive advantage. Take this time to identify the gaps in your current business performance, then move quickly to fill them through a strategic acquisition.

Selling the solution, rather than the business

During times of financial difficulties, businesses must respond with urgency – prepare for what’s to come and think ahead. Of course, easier said than done when facing still unknown impacts. 

However, what can always be controlled is you as a business owner. The way you sell something reflects you and your thought processes, not just the business you are selling. Therefore, everything you do, whether in a start-up or a big company, incremental or radical, should be a mini business plan, a stepping stone along the path of your long-term strategy. Put your “intrapreneur” hat on – always think of where the trends are coming from and play into them. 

Plan, re-plan, scrap that plan and plan again. Flexibility and adaptability are strengths in a crisis.  

When moving through an M&A process during times of crises, it is critical to remember it’s not about what your company is, but what business problem your company can solve. Many would find that to be obvious, but this has been an important lesson learnt. 

When pitching your business, share and emphasise the value your company brings and provide a variety of use cases demonstrating how you can solve critical business problems for specific industry niches. 

The product or solution you’re offering should enable companies to achieve a higher level of business performance than they are currently operating at, while simultaneously delivering successful internal and external experiences. 

Highlight their weaknesses, and be the solution. 

With hardship comes opportunity – know the value of your industry 

COVID-19 has brought into focus what was before a hazy idea for many businesses – the need to digitally transform and acquire the necessary digital skills. Social distancing has accelerated digitisation to the point where the majority of us have become virtual, at least in some ways. Necessity is the most effective catalyst for change. 

A study conducted by EY found that once things go back to ‘normal’, 71 percent of executives plan to prioritise new investments in digital and technology. But, to be perfectly honest, we are never going back to normal: much of the societal change that has already occurred is irreversible. 

Research from McKinsey shows consumer and business adoption of digital jumped forward five years in only eight weeks. This digital acceleration is here to stay and high-quality deals are still able to be done; ones that are a win to both buyer and seller, that strengthen digital transformation and put customer experience to the front.

Create a “moment-in-time, long-term partnership”

Whether a time of prosperity or tragedy, M&As are known for being difficult, and post-COVID-19, they could remain tough irrespective of the size, stage and scale of your company. But businesses that have been able to enhance digital transformation remain highly valuable. Networked software and telecommunications companies have been key drivers in pushing our world forward, while telehealth has boomed amid the virus outbreak. 

Capitalising on the purchasing of strong companies during a downturn can make your business even stronger, especially when the global economy begins to recover. As stated in a recent report by Accenture, “Buying the right company at the right price and integrating successfully can create tremendous value.” 

In terms of technology companies, that price has been maintained, or even increased in light of the highlighted value they have proven during the pandemic and changed working patterns that have followed.

However, it is critical due diligence is maintained alongside haste. You need to create a moment-in-time, long-term partnership. It’s an oxymoron, but not an impossibility. 

Not only do you need to work with partners to create new companies which serve the greater needs of the moment, such as enabling virtual services during COVID-19, but ensuring both companies are the right fit is critical to a smooth and successful transition. 

This compatibility will go a long way in helping to protect the original vision of your business. So will working together to create new organisational structures, develop stakeholder engagement and safeguard the corporate culture. 

While it’s not possible to guarantee a company identity won’t be stripped of its vision and culture post-acquisition, this risk can be minimised through understanding whether the organisation making the acquisition is the right cultural fit. The balance on integration is also key – taking a measured approach is extremely important to ensure the acquired company doesn’t completely fall apart.

It would be easy for business owners to write off M&A activity during a global pandemic, but in reality, this could be as damaging as waiting for economic recovery. We have in front of us a myriad of opportunities – don’t let it pass you by. Putting the work in to find the right fit for your business could just stimulate even more growth than imagined. 

Dr. John Bates is CEO of Eggplant.

The views and opinions expressed in this Viewpoint article are solely those of the author(s) and do not reflect the views and opinions of Fintech Bulletin.