M&A as a strategy to mitigate global disruption

M&A is often used by companies to respond to shifts within their sector, whether these shifts are driven by advances in technology or broader social trends. However, the perceived wisdom is that genuine crises (whether they be war, pandemics or economic collapses), act as headwinds to strong dealmaking activity.

COVID-19 has led to a period of huge upheaval in M&A, with dealmaking first coming to an abrupt halt as the pandemic hit at the end of Q1 2020, before a gradual recovery in the second half of the year and ultimately a massive surge of dealmaking appetite, resulting in inflated deal volumes throughout 2021.

As this wave of post-COVID dealmaking eases and the world responds to emerging crises like the war in Ukraine, unprecedented supply chain disruption and soaring inflation, the outlook at the midway point of the year might tend towards forecasts that dealmakers will once again put the brakes on their activity and look to wait out the current uncertainty.

However, with the world veering towards a state of near-permanent crisis, many CEOs and business owners seem to be viewing M&A activity as one of their key responses to global turbulence.

According to a recent Numis survey of FTSE250 directors, 86 per cent said that they planned to ramp up their M&A activity during 2022, with Stuart Ord, Numis’s Head of M&A, describing acquisitions as now being a “defensive necessity to adapt to new realities”.

Separately, a new EY survey has found that 66 per cent of UK CEOs are planning to accelerate acquisition strategies this year, with many citing responding to rapid sectoral and societal changes as being the key motivator behind their M&A plans.

Increasingly, it seems that M&A is moving away from trends in which crisis points lead to either distressed M&A as other businesses collapse, or reactive M&A in the wake of the crisis as buyers strive to adjust to changes.

As 2022 continues to unfold in eventful fashion, it’s important to consider how companies can use M&A to either respond to crises proactively or to futureproof their businesses, rather than purely as a growth strategy in more stable times. Furthermore, with the war in Ukraine escalating rapidly, we examine how this may affect the strong M&A sentiment seen during 2021 and at the start of 2022.

Pandemic response continues
While current M&A trends may indicate that the inflated dealmaking that followed the pandemic in the second half of 2020 and throughout 2021 is beginning to recede, COVID-19's seismic impact is still expected to continue to drive dealmaking this year.

Across many industries, the pandemic is a crisis that has spurred long term change and business owners are utilising M&A as one of their core responses. In a survey of UK CEOs by EY, 90 per cent said that their sector had been affected by COVID-19, with more than a third expecting these changes to be fundamental.

Among respondents to EY’s survey, 21 per cent said that COVID-19 had reshaped their industry negatively, a view that will see many turning to M&A as they look to pivot their offering and adjust to these changes.

15 per cent of respondents, meanwhile, said that COVID-19 had served to accelerate existing trends that had been taking shape in their sector prior to the pandemic. This acceleration has intensified the need for owners to respond to these shifts quickly. As a result, owners have been more likely to turn to acquisitions of rival companies that already offer services they require, rather than taking the more time-consuming route of developing these capabilities organically.

Summarising, EY says: COVID-19 “has become a significant catalyst for corporate transformation in the UK, interacting with existing trends, accelerating change, and throwing up new challenges that CEOs can’t ignore.”

Aside from ongoing transformations prompted by COVID, there are still forecasts that M&A will continue to be driven by pent-up demand this year. Numis Head of M&A Stuart Ord, for one, argues that demand constrained during the pandemic is continuing to unfold.

Chiming with the findings of EY’s survey, Ord argues that 2022 will see corporate buyers finally fully ramping up their post-COVID activity, having held off last year in comparison to their private equity counterparts. This year, Ord says, corporate buyers will be seeking to do deals that enable them to either strengthen core operations or dispose of non-core assets.

M&A a necessity as geopolitical turmoil threatens growth?
In EY’s report, geopolitical tensions, trade conflicts, protectionism and sanctions were named by 18 per cent of respondents as the most critical risk to their company’s future growth prospects, ahead of issues like climate change, industry disruptors and political intervention in markets.

According to EY, “almost every” CEO at a British company that they spoke to was concerned about disruption and the geopolitical challenges their businesses or sectors faced. In response to these concerns, 88 per cent of companies said they were looking to alter their geographical profile or their supply chain in order to rise to geopolitical challenges.

As we outlined in a recent BSR insight, M&A activity is one of the key ways that companies are responding to the deepening issues related to supply chains, as businesses use M&A to digitise supply, nearshore elements of their operation and make vertical acquisitions in order to streamline and simplify their logistics networks.


Manufacturing firm Volex is one of many similar companies to have been impacted in recent months by supply chain issues and extended lead times. The company, which manufactures cables, saw the cash it generated in its most recent results fall 52 per cent to £15.1 million.


The firm was also forced to more than double its inventory spending to around £22.8 million to enable it to meet the requirements of its customers amid ongoing supply chain disruption.


However, despite these struggles, the company has not tempered its growth expectations and is instead using M&A activity to help it overcome its current challenges and to target growth over the long-term.


The company has spent close to £45 million over the past year on four acquisitions, snapping up competitors in the US, Mexico and India. These deals helped the company to record 38.6 per cent revenue growth in its most recent results, enabling it to unlock efficiencies and vertical integration.


Chairman Nat Rothschild said: “We continue to see significant opportunities across our market. The infrastructure and acquisition investments we have made in FY2022 are focused on our pursuit of further growth, capitalising on the leading position we have in attractive sectors.”


Moving forward, Volex has unveiled a five-year plan through which it aims to nearly double its revenue to $1.2 billion (£976 million) by 2027. To help it achieve this, the company has trebled its borrowing capacity to $300 million (£244.1 million), which it will use to fund further deals, with Nat Rothschild saying the firm has an “exciting acquisition pipeline”.

Indeed, as with the pandemic, geopolitical tensions seem to be acting as an accelerator forcing firms to more quickly adapt to emerging trends and gain capabilities through acquisitions. To take the tech, digital, media and marketing sector as an example, a study of M&A by specialist advisory Ciesco found that dealmaking increased 17 per cent from Q1 2021 to Q1 2022, which saw 500 transactions.

After the US (48 per cent of deals) and Western Europe (23 per cent), the UK was the third most active market tracked by Ciesco, with 13 per cent of deals. Private equity firms were the most active buyers tracked. However, with just 40 per cent of deals being PE acquisitions, this demonstrates that there are many types of buyers investing in the tech space, with digitisation one of the key responses to geopolitical turmoil for any number of companies.

Elsewhere, a study on the energy industry by Anderson Anderson & Brown Corporate Finance (AABcf) looked at how geopolitical tension caused by unrest in the East had caused the price of Brent oil to reach up to $127 per barrel, leading to fears of reduced supply and a global shock to the economy.

However, in response, AABcf noted strong M&A activity in sub-sectors including green energy and oil tech and forecast that this would continue as companies in the sector sought to adapt their strategies. With political tensions continuing to make oil prices unstable, AABcf said it expects “major trade players look to shift their business into more renewable and technology industries."

Futureproofing through M&A
The post-pandemic landscape and ongoing geopolitical turmoil are present issues that some companies are proactively reacting to (as they unfold) with M&A. To others, they also demonstrate a trend of frequent, escalating crises, leading to the question of whether responsive M&A is a sustainable acquisition model.

Should companies, instead, be using M&A to anticipate future crises and safeguard their businesses from the potentially seismic shocks that could be on the way? How should companies prepare, say, for the possibility that the war in Ukraine will escalate further or spread to neighbouring countries, with all its ramifications including further supply chain problems? Or to the possibility that antimicrobial resistance will lead to a future pandemic exponentially more severe than even COVID-19, leading to staffing issues and more rounds of lockdowns?

As EY’s Steve Ivermee says regarding the M&A plans of UK CEOs: “CEOs are taking action to mitigate against short-term pressures, whilst also acting to reshape their businesses, build resilience, and create a more stable platform for growth. The last two years have been a period of intense change. Businesses need to review the profile of their business and its wider ecosystem to position themselves successfully for the future.”

EY notes in its survey that “many CEOs also see M&A activity as an important part of their response to a host of other pressures”, and this includes making the future a core consideration when planning and conducting M&A deals.

EY’s survey found that more than 50 per cent of CEOs in the UK said that capital investment would be directed towards their organisations growth engines or completely new ideas over the coming five years. With the sense of urgency that many dealmakers are operating with at the moment, it is certain that many of these businesses will be using M&A to acquire the capabilities they feel will be required to futureproof and safeguard their future growth prospects in the face of crises.

Will crisis-driven M&A continue in the face of war?
Amid an already tumultuous geopolitical environment, Russia’s invasion of Ukraine emerged in February as perhaps the biggest global crisis point since COVID, throwing global M&A markets into disarray. The outbreak of the war saw severe disruption, as many dealmakers with exposure to the European market paused their activity, were forced to engage in more stringent, drawn-out due diligence processes, or, as in the case of UK measurement-device firm Spectris, called off deals altogether.

Figures from Dealogic examining European M&A activity in the first quarter of 2022 found that deal values declined 18 per cent to around $213.1 billion (£173.6 billion) compared to Q1 2021. Potentially, then, seeming to cast doubt on the idea that M&A has now become a core response to crises.

However, despite the undoubted impact on M&A, there are signs that markets perhaps haven’t been as badly affected as they might have been and that the conflict is even spurring on dealmaking in certain sectors.

In the UK, as we reported in this recent insight, deal volumes and values tracked in BDO’s PCPI for Q1 2022 both declined from Q4 2022. However, as remarked upon by BDO M&A Partner Roger Buckley, the figures seen during Q1 in fact demonstrated the strength of the M&A market in the face of considerable economic and geopolitical uncertainty, with activity remaining at pre-pandemic levels.

Much of the decrease was attributed to a natural slowdown in M&A activity after the somewhat frenzied post-pandemic activity seen during 2021. Furthermore, as again noted by Roger Buckley, March was the strongest month in the quarter despite the invasion of Ukraine, indicating that the war hasn’t put buyers off doing deals en masse.

Of course, while figures for Q2 2022 will likely represent a truer picture of the impact the war has had on dealmaking, the indications so far are that M&A has continued in a strong vein in the face of the conflict.

In some sectors, it is likely that the war will lead to an increase in M&A activity as companies are forced to adjust to the wider impacts of the conflict. We discussed above how rising oil prices as a result of unrest earlier in the year had prompted increased dealmaking (and forecasts for strong continuing M&A activity) in the green energy and oil tech sectors.

Much of Europe is reliant on oil and gas delivered by pipeline from Russia and, naturally, since the onset of the war, the EU has been seeking to reduce this reliance. As a result, it seems fairly certain that the war will see an increase in spending on alternatives among European companies and yet more M&A in sub-sectors such as green energy.

The war and the risk of an escalation in the conflict will also surely intensify the needs of some businesses to adjust their supply chains from Europe in order to avoid seeing the conflict impact their operations. This is likely to involve M&A activity focused on nearshoring elements of supply chains to less exposed regions, as well as digitalisation and tech uptake to improve overall efficiency.

Gambit Corporate Finance, meanwhile, has discussed how the conflict will impact the UK’s software and IT sector as a result of growing considerations such as cybersecurity threat. M&A aimed at bolstering cybersecurity has been high on the agenda for many companies for several years now, but this has only intensified as a result of the war, with the National Cyber Security Centre formally calling on businesses to improve their defences following the invasion.

Gambit Analyst Lloyd Evans has forecast that the war will continue to drive tailwinds for cybersecurity firms. Evans adds that: “In terms of M&A, increased demand is expected to fuel the continued appreciation of deal volumes and values as strategic acquirers look to onboard capabilities and consolidate while financial acquirers look to gain exposure in the sector, providing a window of opportunity for shareholders to crystalise value at elevated levels.”

Finally, there could also be increasing dealmaking as buyers seek to strengthen their M&A due diligence processes in the wake of the conflict. Deals will need to be thoroughly vetted to ensure that acquisitions are not likely to be impacted by the war and this could see buyers increasingly looking to acquire new due diligence capabilities through M&A.

As we reported, AI and machine learning-based solutions are enabling buyers to automate due diligence processes, not only making them quicker (incredibly valuable for keeping deal times down in an environment in which more due diligence than usual is required) but also more secure.

AI-powered analytics, meanwhile, can enable buyers to quickly generate deeper insights on potential acquisitions, which could prove vital for acquisitions in which buyers need to pay close attention to the potential risks of a transaction.

As the need for automated, optimised and secure due diligence solutions intensifies, companies that are able to offer these services to dealmakers (particularly large consolidators operating scaled-up M&A strategies) are likely to find themselves becoming acquisition targets.

As 2021 demonstrated, dealmakers are not hanging around in the post-pandemic environment. As various concurrent crises accelerate existing trends, buyers are increasingly factoring M&A activity into their responses, rather than waiting for uncertainty to abate.

While the war in Ukraine has naturally derailed some of the dealmaking most exposed to the conflict, it has also highlighted how companies in certain sectors are adopting acquisitions as a way to mitigate and manage risk.

In a world where crisis points are seemingly ever more frequent, the strong dealmaking that the UK and, to a lesser extent, Europe have seen since the outbreak of war clearly demonstrates that many dealmakers see proactive M&A activity as a necessary response to uncertainty and one of the best ways to guard against future crises.

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