Fishing in Muddy Waters: Mergers and Acquisitions During Uncertainty

Abstract

Using the COVID-19 pandemic as an exogenous shock, we examine the acquisitive behavior of firms during a period of heightened uncertainty. Particularly, we analyze the impact of work-from-home amenability of acquirers, which presented itself as a pandemic-induced opportunity and resilience factor for some firms, on deal characteristics using cross-country deal-level data. We find a significant increase in both deal completion propensity and deal size accompanied by a decline in the deal completion time for acquirers more amenable to remote work. The effect is more pronounced when both the acquirer and the target are more suitable for remote working. Our findings suggest that firms more adaptable to remote workflow, which were reluctant to engage in acquisitions at the onset of the pandemic, engaged in deals more actively in the subsequent quarters with a decline in uncertainty. The novel insights on the acquisitive behavior of firms during the pandemic contribute to a deeper understanding of industry shocks on merger activity.

Keywords: Mergers, Acquisitions, COVID-19, Remote working, Work from home