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At the start of the pandemic, the M&A Leadership Council partnered with M&A Partners to survey 50 C-level executives and senior corporate development leaders about their plans to expand. More than half of respondents (51%) reported a temporary freeze on current deal activity. Unsurprisingly, M&A plans will be stalled for many throughout the remainder of 2020, with 26% of respondents anticipating a substantially lower deal volume during the second half of 2020 as compared to 2019.


However, among these sobering statistics are reminders that not all deals are being halted. About 12% of respondents claimed to be expediting late-stage deals, and another 12% intended to proceed to deal closing as planned. The unique conditions surrounding this recession are causing the effects on M&A to differ significantly from one industry to the next. While tech companies and food delivery giants continue shopping around for deals, the industries hit hardest by the pandemic are pressing pause, at least for now.

Automakers hit the brakes

Auto manufacturers are particularly vulnerable during recessionary periods when big ticket purchases are put on hold. To recap, new vehicle sales fell nearly 40% during the Great Recession, and with Q2 results in, it’s clear that the 2020 recession is sending automakers reeling again. Major automakers reported a 30% drop in US sales during the second quarter, and some are only staying afloat by selling debt or taking out cash from previously arranged lines of credit. These actions ultimately increase bankruptcy risk across the passenger vehicles market, which has mixed implications when it comes to M&A.

On one hand, the threat of insolvency means that mergers, joint ventures and acquisitions by larger suppliers may eventually pick up post pandemic to help keep supply chains running. In the near term, however, most automakers are devoting resources toward their core operations rather than pursuing investment opportunities. In fact, at the global level, some deals have been canned, including Volvo’s planned merger with Geely Auto.

Meanwhile, a massive merger between Groupe PSA (Peugeot, Citroën, DS, Opel and Vauxhall brands) and Fiat Chrysler is on its way to completion, albeit at a sluggish pace. While this merger will make the biggest splash in the European market, US buyers may notice some changes in the electric vehicle (EV) submarket. As the company joins forces to develop its first EV model, US buyers may find yet another option when it comes to driving green.

As the pandemic continues taking its toll on the US market and automakers’ balance sheets suffer, the M&A landscape will likely shift. Consolidation in an already concentrated market could mean firmer prices and higher barriers to entry for emerging automakers, both of which would stifle competition among top manufacturers.

Aviation deals take a nosedive

The aviation industry, comprised of airline operators, aircraft manufacturing and military aviation, is another industry that suffers amid recessions. The Great Recession brought about massive losses for airlines, with US airlines losing more than $20 billion collectively. With this recession, financial distress isn’t the only thing stopping travelers from hopping on the next flight. Health and safety concerns surrounding travel, as well as travel bans and quarantine restrictions in certain regions, are making air travel particularly difficult. With the Q2 results in, we now know the extent of airlines’ losses thus far, with the United States’ five largest airlines losing $11.8 billion in the second quarter.

In the wider aviation industry, global deal value dove 66% from Q4 2019 to Q1 2020, to a total of $4.6 billion, according to Mergermarket. Deal volume over the same period dropped 33%, a sign of shifting priorities in the industry and plunging industry valuation. On the list of halted deals is Boeing’s $4 billion deal to take a majority stake in Embraer’s commercial jet business. Boeing executives are anticipating a slow recovery for the aviation industry, stating that it could take three years for commercial air travel to return to normal.

Furthermore, if past crises are any indicator of what’s ahead, the airline industry will likely contract, and flight offerings will likely decrease. Take the 9/11 tragedy, for example. Prior to this catastrophe, there were nine major US airlines that have since consolidated into four massive operators that control the domestic air travel market: American, United, Delta and Southwest. Now, travelers will have to watch closely to see whether smaller players have what it takes to weather the pandemic. Should these underdogs become insolvent, buyers can expect rising market share concentration to tip pricing power back to air carriers.

Even if the likes of Spirit Airlines make it through, suppliers will still find ways to regain pricing power. For one, carriers will continue to cut unprofitable routes, pushing more passengers to occupy planes headed to major hubs. Even on more popular routes, operators will likely reduce the frequency of flights to drive up occupancy. These factors, along with the threat of further consolidation, are expected to drive up fares post pandemic.

Healthcare consolidation comes with serious side effects

Despite its typically recession-proof nature, the healthcare industry has been blindsided by the coronavirus pandemic. With many patients’ elective procedures put on hold, some major revenue streams have dried up. To offset the shock, Congress established a $170 billion bailout fund for healthcare providers. Now, in an already scrutinized healthcare system, the public is watching closely to see how hospitals handle these funds.

In turn, merger talk among numerous recipients of bailout funds have not gone unnoticed. In May, Reuters reported that a group representing Boeing, Walmart, and several other giant corporations, asked Congress for a year-long ban on healthcare M&A. In particular, the group is asking that hospitals and other healthcare providers on the receiving end of bailout money halt their M&A plans.

The healthcare industry was already consolidating rapidly before the pandemic, giving rise to a number of rich, powerful hospital systems that have crowded out smaller players. Providence Health System, one of the country’s largest and richest hospital chains, was awarded $509 million in government funds, while poorer hospitals received pennies in comparison. As richer hospitals line their pockets, smaller competitors are going bankrupt, shifting even more power into the hands of the richest healthcare providers.

If calls for tighter competition laws go unanswered, further consolidation in the healthcare industry will give healthcare giants even more pricing power. Patients can expect higher fees for care, and their premiums on private health insurance will likely climb. Even patients utilizing employer-sponsored coverage may need to contribute more of their paychecks to help offset rising prices in the group health insurance market.


By Kim Bucci

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