M&A during unstable market conditions

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  • #36305

    Do you believe uncertain market conditions create opportunity for larger firms to acquire smaller businesses and hence it would increase the number of M&A transactions? I found it interesting that only banking and insurance industries showed significant increase in the number of consolidations during 2020 while the number of M&A transactions in other industries decreased or remained stable.


    I’m not able to attach images here, but I have an image from a study that shows that during uncertain market times, companies that does acquisition outperform its peers as they purchased and expanded at low prices (as the cost is related to the stock prices).

    So I do believe uncertain market conditions create opportunities for large firms with cash to purchase smaller companies – however its important for the fundamentals to be in place as well – and not acquire for the sake for acquiring and expanding.


    I agree with this analysis that during such times acquirers, with better financial position, would be able to negotiate the best prices and terms, thus achieving a larger market share. As soon as the market conditions improve the acquirer will realize the intended gains.


    Depends on the strategy behind the M&A, one strategy is to consolidate resources during unstable times. Another strategy is a need to rapidly adapt to the instability in the market by acquiring and expanding into new capabilities to remain competitive. We see an increase in M&As in the technology industry post-2020 which is arguably driven by a need for industries to quickly digitize operations and an increased importance of digital security and collaborative videoconferencing tools which became a necessity for any business to remain operational during the covid era.

    Sam Chee

    I feel that unstable market conditions = uncertainty, volatility = risk and opportunities for acquiring companies sitting on a war chest and optimistic of business recovery.


    I assume you were referring to the Saudi market and possibly a few other countries on the M&A activity in banking and insurance. In general, uncertain times or weaker industry times normally lead to an increase in M&As since survival is more likely in unity, perceived lower costs per unity of service, higher market share (higher dependence from customers on a few players), etc.


    Uncertain market conditions may cater for businesses that are experienced in undertaking M&A activity to pursue more deals and potentially acquire a target at undervalue; whereas, businesses that have little M&A experience may be hesitant to pursue or conclude an M&A deal during times of economic uncertainty.

    Shuvam Koley

    If the business has a favourable long term outlook irrespective of uncertain market conditions (which may be a temporary issue), it may be a good opportunity for large firms which have economies of scale and better capital adequacy to potentially acquire a smaller firm at a competitive valuation, thus taking advantage of the situation. However, if the uncertain market conditions are expected to persist in long term and may permanently have a downward impact on the business in which the firms operate, M&A activity comes with a risk even for larger firms and needs to evaluated with caution.

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