How do you find clarity in the midst of the COVID-19 crisis? How do you find clarity in the midst of the COVID-19 crisis?

By Steve Krouskos

EY Global Managing Partner – Business Enablement

Enabling EY to create long-term value. University of Florida alumnus. Son, husband and father of four.

Local contact

Strategy & Transactions Markets Leader Europe West, EY Strategy & Transactions Leader Italy

Marco Daviddi è responsabile della Service Line Strategy and Transactions da Luglio 2018. Ha oltre 20 anni di esperienza nel settore reale estate.

18 minute read 30 Mar 2020

Learn how companies are using M&A to drive transformation in an uncertain global economic environment.

Our Capital Confidence Barometer survey forms part of a wider range of insights on the COVID-19 crisis.

Despite unprecedented social and economic paralysis, many global companies continue to plan major transformation programs. More than half (56%) of executives globally are opting to transform through transactions and plan an acquisition in the next 12 months, according to our Capital Confidence Barometer survey of more than 2,900 C-suite executives globally.


Many people will be, given that the world currently looks like some kind of dystopian movie with empty streets, hundreds of millions of people in lockdown, production plants idle and planes grounded in abandoned airports.

But executives need to consider the COVID-19 crisis in the long as well as short-term — responding with urgency now, preparing for next and also thinking beyond.

    Local Perspective IconA local perspective

    Supply chain reorganization must be a (top) priority for companies

    Supply chain re-engineering, automation, digital transformation, especially for sales channels and workforce management, represent key priorities for companies to be more resilient in the future. Most business sectors suffered a temporary slowdown of M&A transaction activity due to the lockdown measures, declining target performance and low level of confidence in the market. While liquidity is the crucial topic, the poor operating performance and the increase of debt will impact Net Asset, driving issues in terms of capital. That’s the reason why all the business leaders interviewed expect increasing transaction activity in the next 12 months.

    Sectors consolidation is a clear topic, while Private Equity appetite, despite the max dry powder ever recorded, is still to be verified.

    Some anticyclical sectors, such as technology, power&utilities, infrastructure and life science, appear to be less hit by the crisis and remain more appealing to corporate and financial investors.


    Local contact

    Marco Daviddi
    Strategy & Transactions Markets Leader Europe West, EY Strategy & Transactions Leader Italy

    Now: managing in crisis mode

    Three-quarters (73%) of C-suite respondents expect COVID-19 to have a severe impact on the global economy. The impact of COVID-19 globally has been staggering. And the human cost is, of course, the most terrible aspect of this unprecedented crisis — not only in term of lives tragically lost but also the number of livelihoods at risk. Workforce welfare and jobs preservation will be top of boardroom minds in the midst of this crisis as executives urgently address what needs to be managed now.

    Business leaders are laser-focused on navigating the immediate impact that COVID-19 has across liquidity, supply chains, revenue and profitability. There is no playbook for this situation. The C-suite is reconfiguring and readjusting its response in real time as events evolve rapidly.

    Facing this challenge, executives are now changing their operating models. An unparalleled shutdown of activity in many parts of the world has precipitated new actions, with more than half (52%) of respondents actively taking steps now to change their current supply chain and more than a third (36%) accelerating investment in automation. And the vast majority of those not immediately acting are currently re-evaluating their options. 

    The unexpected nature of COVID-19 has put many organizations on their back foot. But, as with governments in this crisis, executives cannot afford to be wholly reactive. They are also proactively planning and anticipating what’s next.

    Next: navigating a downturn and positioning for recovery

    The likelihood of a global downturn was, only a short time ago, a lively discussion among economists. That’s no longer up for debate — it’s happening. More than half (54%) of global executives expect a U-shaped recovery — a period of slower economic activity extending into 2021. More than a third (38%) are more optimistic, expecting a V-shaped recovery — a return to normal activity toward the end of 2020. 

    The shape and severity of the downturn depends not only on government policy but also how business can steer through adversity and refocus on growth. Many global companies had transformation initiatives underway pre-crisis. These may have been paused or slowed because of the current situation. But they will restart — and likely with added emphasis and urgency.

    Looking forward, the majority of global companies (72%) will be conducting more regular strategy and portfolio reviews.

    Once normality has returned, many executives say that they will prioritize new investments in digital and technology (71%) and how they allocate capital across their portfolio (73%). These plans will restart. Executives will likely look beyond the downturn and make faster moves to reimagine, reshape and reinvent their businesses to help fuel the recovery and create long-term value for all their stakeholders.

    Beyond: transformation — and M&A can be a fast-track

    It is clear many of our respondents will increase the frequency, improve the quality and action the outcomes of portfolio reviews and companies that quickly reboot pre-crisis strategies will likely be best positioned post-COVID-19. That means even better use of data to understand the new market environment and the evolving competitive landscape. It also means rebalancing portfolios of assets more frequently through acquisitions and disposals.

    As with government actions now, what happens beyond the crisis needs to be activated at the right time. In terms of deal intentions, our respondents are taking a 12-month horizon and remain resolute in their pre-crisis plans. That M&A intentions remain at elevated levels in the midst of this crisis is no surprise — transformation through transaction is now an established chapter in the CEO playbook. Acquisitions can be a powerful means to reshape portfolios and accelerate growth. 

    Of course, nobody can accurately predict the future — and that is particularly true at a time when much of the world is on pause because of the biggest global health emergency in generations. However, what we do know about the future is that we should all learn from the past. In hindsight, data shows that the post-financial crisis downturn in 2008-10 was an opportunity to make bold transformational strategic moves, including acquisitions of high-quality assets that would have fueled faster growth in the upturn. So, while the world comes to terms with the COVID-19 crisis, the way forward for global executives is to not only to address the incredible challenges we all face now, but also to plan for next and think beyond.

    Contact us for support through these volatile times


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    Chapter 1

    Addressing the now – the COVID-19 crisis

    Assessing the impact of crisis on global economy

    Companies and executives are faced with a changed reality “now.”

    The global COVID-19 pandemic has created a shock of seismic proportions with unprecedented human, social and economic impact. There was a clear shift in business sentiment in the middle of February. Prior to that, outside of Asia-Pacific, the clear majority of respondents felt confident about the global economic outlook. Equity markets hit all-time highs, reflecting this positivity.

    Everything has changed. Our survey started on 5 February, and early responses were highly optimistic — but the outlook darkened considerably after the S&P breached its record on 19 February. And we can see this schism clearly in the responses about growth. For the vast majority of companies, dealing with what is happening now is their only concern.

    Three-quarters of executives surveyed expect COVID-19 to have a severe impact on global growth. Zero respondents anticipate no impact. Past downturns and crises have not prepared companies for this international health emergency. Many major economies are facing unprecedented shutdowns in day-to-day economic activity. There are not yet models available to confidently predict the eventual outcome of this situation.

    This latest crisis appears to combine elements of previous downturns. There is massive operational disruption — including difficulty in sourcing components and a drop in economic activity. This is creating major margin pressure. A significant part of the global economy has shut down — as evidenced by planes parked at stands in empty airports. As a result, there is massive government intervention in an attempt to stabilize the situation.

    The full extent of the impact on the global economy remains unclear, but all respondents agree that at least in the near-term, COVID-19 will have a negative impact on global growth in the form of supply chain disruption, as well as declining consumption.

    Executives are looking to re-evaluate their operating models in response to the emerging crisis.

    The sudden and unexpected nature of COVID-19 has compelled executives to re-evaluate operating models. While building agility and resilience have been dominant themes for much of the past decade, the unique nature of the current situation has left many companies unprepared. The total shutdown of activity in parts of China — and increasingly in others part of the world — has exposed vulnerabilities in many companies’ supply chains, with more than half (52%) taking active steps to reconfigure and 40% looking to re-evaluate their current arrangements. Nearly the same number (47%) are taking active steps to reconfigure. More than a third (36%) are accelerating their investments in automation.

    There will be no “winners” in this crisis, but some sectors look set to be hit dramatically worse than others.

    Most businesses are likely to experience significant ongoing disruption to their business-as-usual operations and will face underperformance throughout the duration of the COVID-19 crisis. The ability of companies to respond to black swan events of this nature is being examined in real time. As well as supply chain and production disruption, there are shifts in consumer behavior impacting several sectors, such as Automotive and Transportation, Manufacturing and Consumer.

    But as consumers change their behavior in response to perceived health threats or government direction, some sectors will be impacted differently. Media, Telecommunications and Technology companies operating in a more virtual environment could see an upturn in demand.

    Pressured margins could be pushed down more as the economy slows.

    Companies around the world are still coming to terms with the impact that COVID-19 is having on their business. But even before the current situation emerged, many companies were experiencing pressures on profit margins. Declining profitability will impact cash flows. An ability to generate the capital to be reinvested in the next generation of products and services is a critical component of success in the mid- to long-term.

    The likely impact of any deeper slowdown will be felt most keenly in sectors that were already under immense pressure to remain sufficiently profitable to invest in future growth. Although the risks are considerable, the crisis also presents opportunities for companies to build resilience and reshape results.

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    Chapter 2

    What’s next

    Managing the impact and planning for recovery

    The timing and shape of the recovery are uncertain, but that will be next on the C-suite agenda.

    While executives are necessarily dealing with the immediate impact of the crisis, they still need to consider when and how the economy is likely to recover. Most previous pandemics have resulted in a V-shaped recovery, with activity picking up strongly once the initial wave of illness is resolved. That is the current assumption being used by just over a third of respondents in their strategic planning. This would see activity accelerating in late 2020.

    More than half of respondents expect a U-shaped recovery, with the aftereffects of the initial impact lingering for longer. Activity would not reach normal levels until 2021. Only a small minority currently expect the impact of COVID-19 to last longer, assuming an L-shape recovery. This would result in an extended period of suppressed economic activity. There would be no pickup until 2022 at the earliest. It is the most damaging environment for companies looking to invest to spur above-trend growth. With the majority of companies assuming a V- or U-shaped recovery, it is easier for executives to start thinking about what’s next.

    Companies will restart their transformation plans after the immediate crisis is over.

    Pre-crisis, transformation was high on the corporate agenda. These plans have been paused for many companies. But they will restart, possibly with added energy, once the situation stabilizes. The case for change is never stronger than when adapting to a crisis — and in many ways the unwelcome and unexpected emergence of COVID-19 will further cement transformational strategies in the boardroom.

    Managing through the downturn requires operational focus to preserve revenues. Planning for recovery will see greater focus on raising profitability and attracting and retaining customers. Transformation requires a shift in strategy. But that strategy itself should always encompass an ability to transform. Agility, flexibility and resilience today are the foundations of success tomorrow.

    Accelerating strategic and portfolio reviews will underpin the journey into “next.”

    At some point, executives will move from crisis mode to refocusing on strategic and portfolio reviews to plan for the future. Companies have acclimatized to operate in a world that is changing at a faster pace than ever before. Once some sense of normality resumes, businesses will readdress more conventional challenges: products and services coming to market faster.

    Startups challenging business models across all industries; regulatory regimes evolving and changing the rules of the game — the need for companies to reimagine, reshape and reinvent their future business fundamentals will once again be top of the agenda.

    Most respondents still recognize the need for more frequent portfolio and strategic reviews.

    Portfolio reviews should underpin the capital allocation process. They should also identify assets that are at risk of disruption or that face future growth challenges that may make them better off owned by another company or private equity fund.

    Overall business strategy is set by the CEO and the board. This top-down view can sometimes conflict with a bottom-up review process, especially with regard to assessing synergies and the value of business units as stand-alone entities or potential divestitures. The cause is often business unit management bias, which, while understandable, does provide a barrier to the holistic view of the whole business that the review process should yield.

    • An always-on strategic and portfolio review process will allow companies to identify areas of growth at the earliest opportunity and surface areas of underperformance sooner. This will also enable them to prepare to divest and reinvest should the need arise. Divesting stressed/distressed assets is a typical trend during a crisis and recovery that we should also expect post-COVID-19.
    • Many companies have been finding that yesterday’s competitors are no longer the primary threat to their future growth plans. Obviously, nobody foresaw the current international health crisis, but understanding evolving industry ecosystems, and spotting emerging challenges earlier, will enable companies to protect current operations through investment. They will also be able to identify areas of immediate concern and to acquire potential rising champions at their inception.
    • Effective portfolio reviews always require good data. Companies need to combine their own proprietary internal data with the highest-quality external assessments of their market to surface unique insights. And they need the tools and technologies to consider future scenarios for individual business units as well as at the portfolio level.
    • With faster change, predicting the future becomes inherently more difficult. A scenario-based approach can identify potential opportunities so management can start planning for them today. With greater uncertainty about potential evolution of markets, companies need to bring all parts of their workforce into the review process. This will help companies challenge internal assumptions and explore fundamental questions about the future of the business.

    Companies will move to reassess, reimagine and reinvent their business.

    Looking to the post-crisis future, executives will prioritize both changes in capital allocation and measuring returns and capital efficiency more effectively. How effectively capital is allocated either accelerates or hinders business performance and determines whether companies can readjust to a new environment and free up further capital to reinvest in future growth opportunities.

    Companies across sectors will continue to face disruptive factors such as industry convergence, geopolitical uncertainty, evolving regulatory regimes and technology-fueled fundamental changes to customer behavior. These factors are forcing businesses to evolve rapidly. Executives are using better data to more holistically understand all these interconnected drivers for change across their own and adjacent markets. This is enabling them to better model future changes and more quickly anticipate the moves they need to make.

    Executives are also looking to recycle capital through divestitures and acquisitions based on the results of their strategic and portfolio reviews. The current market is more challenging than it was only two months ago, but it is not yet clear if markets are closed to raising financing for acquisitions. However, given the changing environment, it is better for companies to be constantly assessing their portfolio and divesting to raise capital.

    Once some normality has returned, companies will also prioritize new organic growth opportunities and new investments in digital and technology. Companies have been reimagining their ecosystems for some time — looking at more innovative business models and collaborations to access new markets and customers. They will also be reshaping portfolios and reinventing their future as the world becomes increasingly dependent on virtual transactions. They are transforming to operate in a digitally enabled, hyper-speed world.

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    Chapter 3

    Beyond the COVID-19 crisis

    Transformation through M&A

    After “now” and “next,” companies will eventually focus on “beyond” — activating transformation. And despite current social and economic upheaval, executives do retain some focus on M&A.

    While we have seen a clear shift in outlook for the economy since mid-February and COVID-19 dominating boardroom agendas, executives are also looking beyond the current crisis. These intentions may have to be paused as they search for clarity in crisis. But they will be triggered at some point during the downturn or recovery.

    For many, the experience of the global financial crisis can be viewed differently in hindsight. The M&A downturn that ran from 2008-12 was an opportunity to make acquisitions with suppressed valuations of high-quality assets that would fuel growth in a recovering market. If there is any prolonged downturn due to the current crisis, executives may be bolder in their ambitions and look to acquire those assets that will help them accelerate into an upturn faster. Companies are looking to pursue deals on their own account as other disruptive forces have not disappeared.

    The need to secure long-term growth, regardless of short-term pressures, is also paramount. The intention to actively pursue M&A in the next 12 months remains at elevated levels seen throughout this current deal cycle. The emergence of COVID-19 reiterates the need to assess potential targets more broadly in terms of resilience. It is also impacting valuations. This could accelerate some dealmaking as companies look to acquire competitors to protect and reposition beyond the crisis.

    Growth is on the agenda, with bolt-on acquisitions providing the gateway to new markets.

    Executives continue to look at a range of drivers for M&A to complement their strategic direction. Growth in new markets and adjacent sectors is key as companies will look to expand opportunity. But they will also look to acquire new capabilities and protect against disruption of all kinds. The main types of deals will be bolt-on acquisitions that complement the current business model and smaller deals acquiring capabilities. But there are also bolder moves anticipated, as over a quarter of respondents look to do bigger deals that significantly push the dial and transform their business.

    Pipelines and deal-closure intentions point to a healthy deal flow.

    Executives are not signaling any intention to stay on the sidelines of dealmaking. Both pipelines and anticipated deal closures look set to remain robust in the next 12 months. However, many could pause or shelve these plans depending on the severity of the current crisis.

    Many companies are not capturing the value that comes from the effective use of technology in dealmaking.

    The effective deployment and utilization of technology poses one of the biggest challenges to companies in their day-to-day operations. It also poses a similar problem as companies try to utilize technology to improve the effectiveness and efficiency of their deal processes. A quarter of respondents say they are only using technology at a minimal level as part of their deal capabilities. Drilling down to the available and viable technologies that a company‘s corporate development and strategy teams could be using shows little coordinated take-up.

    The reality is that our increasingly data-saturated world is making the process of M&A more complex. From identifying the right assets in a world where startups can emerge at the blink of an eye to cross-sector challengers rapidly breaking down borders, the number of potential deals to be assessed is expanding rapidly. On top of this, the need to act quickly in a highly competitive market for the best assets while still making certain that diligence is done correctly poses added risks.

    The future of dealmaking means significantly more information than ever needs to be captured, processed, analyzed and interpreted. Traditional means are no longer effective in delivering a competitive edge. Those companies that fully leverage technology throughout their M&A process will be better placed to target the right assets sooner, understand the risks and opportunities better and act more quickly than those who do not.

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    Chapter 4

    Key takeaways

    Six considerations from our M&A strategy survey

    Executives should ask themselves six critical questions to drive better M&A.

    How can you operate in a business-as-unusual environment?

    It is critical for executives to always assume that a black swan event is possible and to plan accordingly. Scenario-planning incorporating the lessons being learned from the COVID-19 outbreak will bolster company resilience.

    Do you know your portfolio’s weakest link?

    Many companies have seen profit margins and cash generating capabilities stressed before the COVID-19 crisis. In order to withstand shocks and create optionality, executives need to examine their portfolios for liquidity vulnerabilities.

    Can you look beyond the immediate crisis to see the next steps?

    More frequent strategy and portfolio reviews are a mindset as much as an event. Executives need to develop systems that can pivot quickly as circumstances change.

    Are you prepared for a new environment?

    The post-crisis environment may be very different from what happened before. Executives need to be bold in their reviews to ensure they take advantage of new market dynamics.

    How can you learn from the past to be bolder in the future?

    Companies that made bold acquisitions in the immediate post-global financial crisis period outperformed peers over the next decade. Executives need to be ready and able to make the acquisitions that will supercharge growth.

    Will technology still be a big deal in M&A-fueled transformation?

    Accelerating the use of technology in the deal process not only adds speed — it supports better outcomes. Executives need to understand the positive impact of emerging technologies on their deal strategies.

    Lead through the COVID-19 crisis

    We have a clear view of the critical questions and new answers required for effective business continuity and resilience.


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    The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.

    About this article

    By Steve Krouskos

    EY Global Managing Partner – Business Enablement

    Enabling EY to create long-term value. University of Florida alumnus. Son, husband and father of four.

    Local contact

    Strategy & Transactions Markets Leader Europe West, EY Strategy & Transactions Leader Italy

    Marco Daviddi è responsabile della Service Line Strategy and Transactions da Luglio 2018. Ha oltre 20 anni di esperienza nel settore reale estate.