Dealmaking In A Downmarket

© AdobeStock
New research from Corporate Board Member and Shearman & Sterling asked 250 public company directors to weigh in on Covid-19-fueled activism, mergers and takeovers.

With valuations askew and many corporations and private equity firms rich in cash, conditions are ripe for a surge in deal-making. But while there are clearly opportunities to be had, the timeline to recovery remains far from clear—and very few market participants have so far chosen to take advantage of the low valuations the Covid-19 crisis has created.

Global M&A activity in the first half of 2020 was down 53 percent year-on-year by value compared to 2019, and our survey of 250 U.S. public company boards—conducted during the summer of 2020—further confirmed it: less than a third of directors reported engaging in M&A activity during the first half of 2020. Prices may be cheap, directors say, but they could get even cheaper. For that reason, many are choosing to wait out the current volatility to avoid making a bad deal.

In Shearman’s expertise, this isn’t necessarily a bad choice. The current economic uncertainty makes it particularly important to understand the business that you are buying and to be able to adequately assess and form a view on how the target company is going to come out the other end of the pandemic.

Then there’s also the issue of time constraints, with so many aspects demanding the time of the executive team just to try to recast a lot of the planning. Adding to that the fast pace of change and the fact that many companies’ strategic planning has been disrupted considerably, and boards may have the right idea in remaining extra diligent in evaluating opportunities and how the targets may perform in a potentially reshaped sector.

But opportunistic takeovers are not a strange occurrence in market downturns. The Great Recession was a clear and recent example of that, and while the 2020 global pandemic doesn’t share the same root cause and consequences, the opportunities for disruption by outside parties remain very similar. If boards aren’t looking to seize opportunities, they must exercise as much diligence to protect their company from becoming a target.

Nearly three-quarters of directors participating in our survey said they expect an increase in shareholder activism due to Covid-19, and more than half (52 percent) this surge will be as or more intense than what we experienced during the 2008-09 financial crisis. With a stock market on the rebound, significant amounts of cash and financing available, and an increasing number of companies reporting having adjusted to the “new normal,” it’s no surprise to observe an uptick in activist campaigns after months of declining activity.

In fact, in Shearman’s view, boards should expect that there will not only be a continuation of the recent uptick in activist campaigns, but new, first-time entrants will be joining as well. The percentage of first-time campaigns during the pandemic has been surprisingly consistent at roughly 30 percent of the total campaigns.

And now more than ever, with more than a third of directors participating in our study saying that their board has identified new significant risks or material weaknesses as a result of Covid-19 that could be flagged by shareholders or activists, many companies are at heightened vulnerability and susceptibility to activism.


Boards should not ignore the potential for surging activist movements, particularly in an environment as volatile and as unpredictable as that of 2020—and one that is seemingly set to continue as such into 2021. Regular discussions on the issue, both with and without shareholders, are crucial at this point, and directors should reflect on certain measures, such as poison pills, they can adopt to protect their companies. There is no doubt that the savviest boards are looking at all factors—their business, their people, their customers and suppliers, their shareholders and their stock price—in an effort to maintain proper governance and evaluate different tactics in a highly challenging and quickly evolving environment.

Our just-released white paper, “Effects of Covid-19 on Shareholder Activist and M&A: Views from Corporate Boards and the Market,” dives deeper into the findings of the study and presents valuable takeaways for boards and their leadership teams to help shape strategy and evaluate the evolving landscape.

Read the full whitepaper: “Effects of Covid-19 on Shareholder Activist and M&A: Views from Corporate Boards and the Market.”

  • Get the Corporate Board Member Newsletter

    Sign up today to get weekly access to exclusive analysis, insights and expert commentary from leading board practitioners.



    AI Unleashed: Oversight for a Changing Era




    20th Annual Boardroom Summit

    New York, NY