Beyond paying a premium, it may be helpful to explore innovative deal structures—for example, partnerships or minority stakes—that give the seller or its investors an opportunity to share in the deal’s future upside.
There’s ample cash on balance sheets to make deals happen. Today’s approximately $12 trillion of corporate cash and equivalents is up 68% from 2017. And over the same period, private-equity dry powder nearly doubled to about $2 trillion.
While interest rates remain high, corporate buyers may have an edge over private equity to pursue transformative, strategic deals given their ability to use cash and equity to finance their transactions. This is especially relevant for companies that have opportunities to accelerate their strategies and digital transformations through M&A but have held back because of exorbitant valuations, especially for technology targets. Now some of those moves are much more plausible.
There’s plenty of cash on hand to make deals happen.
Setting Your Action Agenda
Of course, not every company is in the same starting position in terms of financial health, strategic clarity, and readiness. The most experienced acquirers are already poised to make the most of this moment. Other companies still have a chance to take advantage of today’s more accessible asset values if they move quickly. The objective should be to radically accelerate your strategy and enable new business models and offerings. We recommend four key moves to get started:
Review your portfolio and resources. Lay the foundation for success by building a shared understanding across the full management team and your board of your starting position, strategic priorities, and freedom to operate. At the portfolio level, it’s essential to de-average your total shareholder return to understand which parts of your business are adding—and which are subtracting—value. Which are “on strategy” versus not? Which have tailwinds at their back—and which face headwinds from megatrends, such as decarbonization or geopolitical factors? What’s your cash on hand and borrowing capacity? Even for companies that need to improve their performance, this portfolio view can provide a valuable lens for transformation planning.
And also focus on what’s missing—what lack of capabilities, technologies, market access, scale, or other factors is keeping you from realizing your strategic ambitions and potential?
- Prepare and plan for your divestitures. Where you’re a seller, or at least open to being one, what is each business worth? What impact would selling it have on your core business in terms of lost scale, stranded costs, and capabilities? Is it currently marketable or does it need a makeover to maximize interest and value creation? What is the most attractive strategy and business plan to drive its future success? What is its equity story for buyers or investors? What financial or strategic buyers would be natural owners for it? Most divestitures in this environment will be by companies that need to sell. But even strong performers should use this time to prepare for the sale of attractive non-core assets when the market starts to bounce back.
- Identify and prioritize potential targets. Where you’re looking to make acquisitions to fill strategic gaps, which pools offer the most attractive fishing opportunities? Within each, which candidate companies are the most attractive? What would you be willing to pay? How would you integrate the acquisition into your business? Then, systematically approach each potential target with a clear, compelling story outlining the strategic and financial benefits of the combination. Best-practice acquirers maintain a radar function that enables them to continually scan for opportunities in their priority sectors.
- Prepare the organization to move rapidly. Is your board ready to act? Do you have advisors lined up? Have you identified a top-notch due-diligence team? And beyond closing, are you up to speed with current best practices for post-merger integration and clear on who will be responsible for driving the successful integration?
With so many sectors facing disruption, the current environment offers leaders an exceptional opportunity to reimagine and reinvent their businesses. For non-tech players looking to boost their digital capabilities, carbon-intensive players seeking to pivot, or any company seeking a step-change in scale via industry consolidation, this could be an inflection point.
And investors are in favor of smart M&A in this environment. The latest installment of the BCG Investor Perspectives Series finds that 68% of investors—near the series high of 72%—believe that management should actively pursue acquisitions to strengthen the business at current valuations.
Leveraging the current uncertainty to accelerate strategic transformation requires thinking differently about potential targets, deal terms, and financing structures. But most of all, it demands the courage to act decisively before valuations rebound.