December 9, 2020 Reading Time: 7 minutes

Yet another side effect of the government’s response to Covid-19 is shining through in recent business headlines. In a widely-touted deal last week, Salesforce acquired Slack for over $27 billion. The purchase is one of the largest ever in the software industry and is the largest cloud software deal ever

While the Salesforce acquisition is one of the highest-profile deals in recent memory, it is only one of the latest in a long chain of consolidations that have occurred during the pandemic. Since the pandemic began, the pace of corporate mergers, acquisitions, and restructurings has been accelerating. Firms normally take such actions when they see an opportunity to increase profits––for example, via economies of scale or increased productivity––or when the buy versus build proposition for a sought-after brand or product shifts. 

That being said, the recent wave of activity is almost entirely the result of the first and second order effects of government policies. There are three elements to this accelerated activity: the financial environment, lockdown effects, and varied commercial exposures. 

Though the prevailing financial environment and commercial exposure always shape the pace and focus of corporate activity, the pandemic-era burst is driven by the asymmetric effects lockdowns have upon small firms and consumers––and comes at their expense. 

The Financial Environment

Interest rates have been in historically low ranges for most of the last two decades, but with the stresses in the U.S. Treasury market (which soon spread to other markets, in later phases seeing a withdrawal of liquidity from both the commercial paper and revolving loan markets), the Fed tilted back to near-ZIRP mode. After lowering interest rates on Tuesday March 3rd, on Sunday, March 15, the Board of Governors of the Federal Reserve System dropped the Fed Funds rate from a target range of 1% to 1.25% to a 0% to 0.25% rate. This was not only the result of an emergency unscheduled meeting––a sign of the level of exigence and panic––but was also a 150 basis point reduction, six times the normal rate-shifting increment. The rate at the discount window was slashed from 2.75% to 0.25%, with the term length of loans secured by securities extended to 90 days.

After the stock market crash on March 16, 2020, and owing both to a tidal wave of liquidity and the realization that apocalyptic predictions never came to pass, an astronomical rise in U.S. equity markets began: Between March 16, 2020, and November 2, 2020, the S&P 500 rose 67.80%, the Dow Jones Industrial Average 57.66%, and NASDAQ a whopping 107.56%. 

With interest rates at Great Recession-era lows and equity prices rising at rates comparable to the dot com era, the pandemic gave rise to an acquisitive frenzy. Large firms, both publicly-traded and private, seized upon opportunities to acquire particularly hard-hit companies in vulnerable sectors, spurred by the availability of loans at virtually 0 percent financing and/or pumped up stock values for equity-financed deals. 

Just last week, for instance, Retail Ecommerce Ventures announced that it would buy Stein Mart for $6.02 million, with plans to relaunch the company online next year. Stein Mart filed for bankruptcy in August due to what CEO Hunt Hawkins called a “challenging” retail environment and “significant financial distress” brought on by the Covid-19 pandemic. After 112 years of operation, the company could not weather this storm. 

According to Thomas Vaughn, co-leader of Dykema’s Mergers & Acquisitions practice, “…deal-makers see increasing opportunities for completing deals in the next 12 months” despite ongoing economic uncertainty. There are consolidation options open to many different types of actors, says Vaughn, “whether you’re a strategic or financial-focused buyer or a seller hoping to cash out.”


Historically, bankruptcy and insolvency filings have closely tracked the business cycle; small businesses are, for obvious reasons, usually hit harder than their larger competitors. Not only are smaller firms thinly-capitalized and run on a shoestring budget, they are starkly undiversified as one-off establishments. The Covid-19 lockdowns, in part owing to their sudden imposition and in part due to their unique nature (namely, their not being driven by the liquidation of malinvestment), have been particularly devastating to small and micro-firms.  

With the election threatening the introduction of a sharp break from current policy––in particular, President-elect Joe Biden has commented that he would back a federal mask mandate––there was a rush to get deals consummated. In the seven days prior to November 3rd,

[c]ompanies…announced $143.1 billion of mergers and acquisitions globally…the highest for any week preceding a U.S. presidential vote since Bloomberg started collecting data. It’s more than double the tally for the run-up to the 2016 election. 

The price exacted by lockdowns is still being tallied, but the American Institute for Economic Research has been keeping a record of those costs over time. Yet these, ruinous as they are, are only one factor..

Commercial Exposure

The Covid-19-era economy has put once-secure companies at risk as government restrictions and changing consumer habits exact their damage. In such economically upended times, new investors and pre-established heavy-hitters alike see mergers and acquisitions as an effective way to develop their presence in the business world.

Government reactions to the pandemic have been strong driving influences, particularly those centered on lockdowns. In some instances, as in the cases of Hertz, Brooks Brothers, Frontier Communications, Gold’s Gym, Ruby Tuesday, and Vision Group, firms that were formerly viable have become distressed owing to the effects of lockdowns or market reactions to lockdowns. That being said, firms in certain sectors have found new success in the pandemic economy. 

Healthcare was an active field for corporate actions. Already a fragmented industry, pharmaceuticals saw some major mergers surrounding vaccine development efforts and the transforming medical landscape. Many companies have taken to selling off businesses to build their cash positions, creating speculation that some firms are gearing up to pursue acquisitions. Among them are giants like Pfizer and Sanofi. Drugmakers, emboldened by higher stock prices and considering the promise of the next Operation Warp Speed, have been snapping up competitors and complementary firms. Vaccines, testing kits, and treatment regimens are good business:

(Arthur) Wong expects to see more megamergers like drugmaker AbbVie’s (NYSE: ABBV) $63 billion acquisition of rival Allergan and Bristol-Myers Squibb’s (NYSE: BMY) $74 billion acquisition of biopharmaceutical company Celgene, which were both in 2019. A recent inquiry by AstraZeneca to rival Gilead Sciences Inc. (Nasdaq: GILD) about a potential merger, which would be the largest healthcare deal ever, reported by Bloomberg, is evidence that merger interest hasn’t died down with the pandemic, Wong says.

The oil exploration and drilling sectors were busy in the wake of the brief eruption of a free market in oil. In early March of 2020, Saudi Arabia and Russia engaged in a price war, effectively leading to a tidal wave of oil hitting the market at a time when Covid-19 lockdowns had driven demand for oil and petroleum products to its lowest level in generations (perhaps ever, indeed, in the modern world) with uncertain, varying reopening guidelines worldwide. With over 40 major oil exploration and production firms having filed for protection from creditors and vulture firms circling, a rapid decrease in the number of such firms is likely in the near- to medium-term.

Unsurprisingly, sectors that support today’s remote economy have seen some of the most drastic increases in mergers and acquisitions. Technology media and telecom saw the most deals of any sector in the third quarter, with 760 deals totaling $301.2 billion. These, too, owe almost entirely to the stay-at-home orders issued by governors and municipal officials. 

Although firms in the restaurant, entertainment, and retail businesses have been hit hard by the restrictions, particularly in major cities, the impact on firms is “certainly not sector specific.” Not only are firms with razor-thin margins and meager savings being ordered to close with little notice, but the consumption volumes and patterns of patrons have been severely altered as well. U.S. Census Bureau data from the first half of 2020 verifies this: Between March and July 2020, 50 percent of consumers reported a loss of income; and between April and May 2020, 74 percent of small businesses reported revenue declines. Consolidation at the “top” has been accompanied by a depression-tenor winnowing at the bottom. This economic “extinction-level event” took root due to less competition and greater concentration. 


This article is not a harangue against corporate size, the effects of consolidation, or the periodically tremendous rewards that accrue to investment banking, private equity, or vulture investment activity. Nor does it seek to criticize rapid and unpredictable changes of taste for their effects upon firms. It has, instead, to do with distortions caused by government tinkering in financial markets and unintended (however easily anticipatable) consequences of social policies. 

The purchase of Slack by Salesforce may well have happened absent lockdowns, office closures, and waves of fear sent coursing through the economy. And in addition to what has been seen thus far, dealmakers project increasing opportunities in the coming year or two. Meanwhile, the impact of the restrictions has devastated small firms, the engine of employment within the U.S. economy. It has also given rise to an existential risk factor which both first-time and prospective entrepreneurs will face: The next time a nasty virus appears in the United States––or any pathogen, really, that is perceived to be dangerous––there is a nonzero possibility that their entire livelihood and their life’s work will be swept away with the proverbial stroke of a pen. 

It’s a stupefying state of affairs: For decades, anti-wealth activists, disingenuous social scientists, and political agitators have been asserting that the gap between the rich and poor has been increasing (despite copious evidence to the contrary), ignoring two distinguishing features of the wealth gap in the United States and most advanced industrial economies. Not only is it not nearly as wide as alleged, but there is rapid turnover at the “top,” and a rising tide for all income levels

In actuality, lockdown policies have deftly accomplished what the enemies of the market have long alleged capitalism and free markets do. Not only have the anti-Covid policies artificially expedited the consolidation of firms and the harvesting of market share lost by smaller firms, but the wealth gap has increased. Blue collar and administrative workers generally have fewer options for working at home than higher-paid, white collar and professional workers do. 

Never before, even during periods where “corporate greed” or “predatory practices” have supposedly been out of control, has there been such a complete reversal of decades of economic progress made by lower income groups in such a short amount of time. 

Nonpharmaceutical interventions––mostly lockdowns, which are structurally (if unintentionally) biased in favor of large businesses––alongside a sudden, vastly expansive wave of monetary policy initiatives have, in a way that no conniving billionaire ever could have engineered, thrust the rich and firms with existing economic heft upward while crushing the poor, struggling workers, and minorities. And with greater market power, barriers to entry will likely creep higher, making it more difficult for smaller or upstart firms to enter certain industries than prior to the policy-induced agglomeration of firms. Although it will be some time before the precise macroeconomic and social effects can be analyzed, the post-lockdown trend is empirically clear.

Peter C. Earle

Peter C. Earle

Peter C. Earle, Ph.D, is a Senior Research Fellow who joined AIER in 2018. He holds a Ph.D in Economics from l’Universite d’Angers, an MA in Applied Economics from American University, an MBA (Finance), and a BS in Engineering from the United States Military Academy at West Point.

Prior to joining AIER, Dr. Earle spent over 20 years as a trader and analyst at a number of securities firms and hedge funds in the New York metropolitan area as well as engaging in extensive consulting within the cryptocurrency and gaming sectors. His research focuses on financial markets, monetary policy, macroeconomic forecasting, and problems in economic measurement. He has been quoted by the Wall Street Journal, the Financial Times, Barron’s, Bloomberg, Reuters, CNBC, Grant’s Interest Rate Observer, NPR, and in numerous other media outlets and publications.

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Fiona Harrigan

Fiona Harrigan

Fiona was a Research Intern for AIER

She is currently an associate contributor for Young Voices. Her writing has been featured in the Wall Street Journal, the Orange County Register, and various other national and local outlets. Prior to joining AIER, she worked for the Foundation for Economic Education.

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