Ulrike Mayrhofer*
Professor
IAE Nice Graduate School of Management
Côte d'Azur University
*Faculty member of the Business Science Institute
Article written with Ludivine Chalencon, Senior Lecturer, Finance and Accounting, iaelyon School of Management - Université Jean Moulin Lyon 3 and Manon Meschi
PhD student at Université Côte d'Azur, IAE Nice, GRM and Assistant Professor, ESSCA School of Management and originally published on The Conversation France.
The Covid-19 pandemic and the war in Ukraine were global crises that called into question the investment policies of multinationals. These exogenous shocks, by their very nature unpredictable, have created a strong climate ofuncertainty, forcing companies to reconsider their acquisition policies.
Company takeovers enable multinationals to accelerate their growth and seize new development opportunities. They do, however, entail a number of risks linked to their financial and organizational complexities, which are accentuated when targets are located in distant countries.
Recent exogenous shocks have particularly affected the strategies of CAC 40 multinationals, which had stepped up their investments in mature and emerging economies before 2020. This is one of the conclusions of a recent research project, which took the form of a qualitative study based on a systematic examination of the annual activity reports, websites and press releases of the 40 largest multinationals listed on the Paris stock exchange, as well as press articles published on Factiva (a global news and data research platform).
Further decline in 2022
Analysis of the data collected highlights the drop in acquisitions in the face of the exogenous shock of the pandemic: just 23 multinationals made 64 acquisitions in 2020, compared with 30 multinationals that made 121 acquisitions in 2019. 17 CAC 40 multinationals have thus abandoned an acquisition strategy in the face of the exogenous shock of the pandemic.
These include companies such as Publicis Groupe, which had explained this choice by the strong climate of uncertainty linked to the global Covid-19 crisis. After falling in 2020, acquisitions picked up strongly in 2021, before falling again in 2022 following the outbreak of war in Ukraine. The slowdown is confirmed inthe first half of 2023.
However, in business sectors favored by the pandemic, such as healthcare, telecommunications or digital transformation consulting, companies stepped up acquisitions in 2020 to seize new growth opportunities, diversify their activities or acquire new skills.
For example, Atos has made ten acquisitions in 2020 to expand in the digital and cybersecurity fields. The aim is to meet the need to digitalize customer relations and data protection, reinforced by the Covid-19 health crisis. The CEO of the Atos Group explains in the annual report:
"In 2020, we made 10 acquisitions to accelerate our strategy. We've also strengthened our partnerships and expanded our ecosystem, not only with major players, but also with start-ups that drive innovation."
Since the pandemic, CAC 40 multinationals have been focusing on acquiring innovative companies, particularly start-ups, to strengthen their digital activities. For example, Publicis Groupe has announced several acquisitions in the digital field(Practia, Yieldify, Profitero and Corra) in 2023.
Our study also reveals that multinationals making acquisitions during the pandemic have generally favored targets in mature countries, particularly in Europe and North America. Of the 64 acquisitions made in 2020, 23 involved targets in France, 14 in the USA and 3 each in Canada, the Netherlands and the UK.
Smaller targets
Exogenous shocks seem to influence the location of the targets chosen. Indeed, the pandemic was marked by the closure of many borders and restrictions on mobility, making it more difficult for management teams to meet, particularly in remote countries. International acquisitions rebounded in 2021 before slowing down again in 2022 and 2023, due to the conflict in Ukraine and fears of a global economic recession.
Our work highlights the fact that the slowdown in acquisition activity also affects the value of completed transactions. Against a backdrop of global crisis, most CAC 40 multinationals are targeting smaller companies with complementary activities, and start-ups in particular, in order to limit the risks associated with their investments.
The deterioration of the global economic environment and the sharp rise in interest rates, due to the multiplication of crises, seem to mark the end of "mega-deals ". CAC 40 multinationals continue to favor less risky operations and smaller targets.
In these turbulent times, French multinationals are showing a desire to reduce their exposure to the high degree of uncertainty that characterizes global crises. The behaviour observed also underlines the trend towards closer proximity of investments and a more regionalized reconfiguration of globalization.
See the Xerfi Canal interview with Ludivine Chalençon on this article: