In 2020, companies faced unprecedented risk as they tried to maintain business continuity while keeping their employees safe. But many experts didn\u2019t anticipate one new pandemic-era risk trend: the rise of mergers and acquisitions (M&A).<\/p>\n\n\n\n
Although mergers and acquisitions activity slowed down for the first half of 2020, it rapidly picked up steam in the second half of the year and is projected to grow even more in 2021. Follow along to learn more about how this flurry of M&A transactions is shifting the risk landscape\u2014and what companies can do about it.<\/p>\n\n\n\n
After the pandemic hit in March 2020, companies anticipating another recession tightened their belts and focused on liquidity. As a result, M&A activity slowed down considerably\u2014and experts predicted that the trend would last through the end of the year. But in the second half of 2020, historically low interest rates fed the mergers and acquisitions market. As Morgan Stanley reports<\/a>, in the last quarter alone, there were 1,250 M&A deals globally, totaling over $1 trillion.<\/p>\n\n\n\n For the most part, these deals took place in industries that were the least impacted by Covid-19. Technology, healthcare, and financial services<\/a> saw the most activity, whereas industrials and real estate fell well below historical transaction volumes. But many financial experts anticipate those harder hit sectors will rebound in 2021, now that there\u2019s a clearer outlook on the market. With M&A volumes hitting their highest quarterly values<\/a> in years despite the economic impact of the pandemic, it\u2019s clear that these deals will continue to be a foundational part of business growth.: <\/p>\n\n\n\n Mergers and Acquisitions: Contributing to this contentious economic landscape are special purpose acquisition companies or SPACs. Sometimes called \u201cblank check companies,\u201d these businesses are explicitly created to take other companies public, allowing businesses to avoid the traditional IPO process. SPACs don\u2019t form with a specific merger in mind\u2014instead, investors pool money and then have two years to find a privately held company to acquire.<\/p>\n\n\n\n According to David Perez, a chief underwriting officer of Global Risk Solutions at Liberty Mutual Insurance, the uncertainty of these transactions increases insurance risk.<\/p>\n\n\n\n \u201cFrom an insurance perspective, you\u2019re underwriting the company raising the capital, but you don\u2019t always know what company they\u2019ll acquire. That leaves a wide range of potential risks to contend with,\u201d he says.<\/p><\/blockquote>\n\n\n\n Because this area of the market is entirely speculative, it can lead to huge swings in stock values. Perez notes that some companies see \u201cswings of 1,000 points from month to month.\u201d That kind of volatility was formerly unheard of\u2014and it is a major contributing factor to the hardening D&O insurance market.<\/p>\n\n\n\nMergers and Acquisitions: SPACs take the lead<\/h3>\n\n\n\n
Weathering the hard market<\/h3>\n\n\n\n