M&A: Maximizing Value in a Post-Pandemic Economy

The global M&A market is blazing hot across every major sector. Just look at the headlines announcing a pending deal between Amazon and MGM. And before that, the big news was AT&T’s deal with Discovery Inc. With deal volume rapidly approaching $2 trillion in just the first half of 2021, that’s more deal activity than any corresponding period on record, according to Bloomberg. And there are signs the party is just getting started. With vaccinations trending upward, stimulus flowing in, borrowing costs at record low rates, corporate coffers awash in cash and global economies shifting into a new gear, companies are feeling more bullish about taking big bets on the future.

Many of these recent deals are substantial. The AT&T announcement to merge Warner Media business with Discovery Inc for $43 BN, joins a roster of other major deals such as S&P Global’s $44.5 BN purchase of IHS Markit and Canadian Pacific Railway’s $25 BN purchase of Kansas City Southern. These corporations are rightly looking to acquire new capabilities and access new business models that can help them adapt and grow effectively in a post-Covid world. With M&A deals likely to hit an all-time high in 2021, here are three things business leaders can do to maximize the value of post-pandemic deals:

1. Sharpen the Value Proposition

The pandemic reset customer behaviors and expectations, both globally and across categories. Companies that invested in digital customer engagement and agile operating models were able to pivot in order to address rapidly shifting customer needs and new, often virtual use cases. As the world emerges from lockdown, the needs and behaviors during the pandemic will combine with pre-pandemic use cases to shift market requirements, once again, into post-pandemic need states.

Shifting customer needs demand refreshed value propositions, which accelerating M&A activity seeks to address. Smart players will use M&A to not only acquire capabilities required to compete in post-pandemic markets but will push their organizations to refresh their comprehensive value proposition including – product, service promise, customer experience and branding.

Example: When Danaher acquired the life sciences assets of GE Health, it retooled the value proposition of that business. In creating a new operating company called Cytiva, Danaher brought a sharpened, stronger value proposition to its biopharma and research customers through a comprehensive product portfolio that dramatically and demonstrably accelerates the discovery-to-development-to production lifecycle of biopharmaceuticals.

2. Expand the Revenue Platform

Platform businesses have attractive revenue dynamics — cross-selling and customer penetration, low customer acquisition costs, the ability to extract first-party customer data and switching barriers that get higher as customers go deeper into the platform. Smart M&A uses acquisitions to not only acquire new capabilities, solutions or customers, it also actively adds and recombines to strengthen platform dynamics.

Example: When Cigna purchased Express Scripts (the largest single deal in 2018), it acquired ESI’s significant PBM and pharmacy assets. Last year, Cigna combined the ESI business with several legacy Cigna capabilities to create Evernorth, a robust health services platform with significant data assets. In combining and reconfiguring assets into Evernorth, Cigna is driving platform revenue dynamics through data-enabled solutions that draw from capabilities across the platform, and drive higher clinical outcomes while lowering costs, what the company calls “the value of integration.”

3. Clarify Purpose for Employees and Customers

Big deals can ratchet up expectations externally and raise anxiety internally. Post-Covid deals are likely to have an even more unsettling effect on the employees needed to power deal success. Office workers have endured a roller coaster year of change. After adapting to work from home, they face another round of seismic changes as re-entry begins and companies call them back into the office. Priorities for these workers have shifted during the pandemic and so has their status quo. Time with family is more precious, commuting is optional and office culture has gone online.

So, when asking employees to undertake a post-merger integration, there better be something meaningful to come back for. Companies undergoing a mega-merger should use this moment to clarify their purpose to the market and to employees. A 2019 Cone/Porter Novelli study found that purpose can drive real business impact, with 86% of respondents claiming that they were more likely to purchase purpose-driven brands and 79% claiming to be more loyal over time. Purpose also drives higher rates of retention, productivity and happiness at work among employees according to a 2017 Great Places to Work study.

Example: When CVS merged with Aetna, the newly combined entity promised to create a new data-driven healthcare model that’s more personal, more convenient and more tailored to individual patients than ever before. They’ve since continued to make good on their purpose to help people on their path to better health by creating a rolling thunder of moves aligned to their purpose and setting clear ESG targets for 2030 and holding themselves to account. Since the deal was announced in 2017 and closed in 2018, CVS Health has shown steady year-over-year revenue growth.

“These corporations are rightly looking to acquire new capabilities and access new business models that can help them adapt and grow effectively in a post-Covid world.”