The good

The experience of dealmaking during the Covid-19 lockdown shows virtual M&A works. Having forced the industry to fully embrace technology and digital tools, there is no denying that dealmaking remains a smooth process, even increasing productivity and the speed in which deals are being completed in the majority of cases.

DC Advisory has seen efficiency and productivity increase when deals are completed virtually. This is due to multiple reasons including; the immediate ability to schedule working sessions, an increased availability of management, investors, buyers, lenders, and third-party advisors and reduced travel and stayovers.

Though corporates who may be going through the M&A process for the first time are taking longer to get comfortable with it, private equity has been seeing the demonstrable benefits of operating in a solely virtual world:

    • The all virtual environment has increased the number of ideas that private equity can hear each day - and in the current uncertain and volatile environment of the pandemic, we believe that there has never been a better opportunity to have more time to look for investments  
    • For management teams and CEOs from companies involved in prospective deals, meeting the other side remains important, but such interactions are increasingly occurring virtually without detriment to the result

On the whole, virtual dealmaking is enabling M&A to take place quicker and everything points towards this continuing, even as the impact of Covid-19 recedes.

This also presents particular advantages with cross-border deals as businesses can communicate with prospective buyers and targets whether next door or on another continent - saving time, energy and money on travelling to various locations to meet. In addition, with the current environmental climate, many companies are looking to review their carbon footprint making flying less preferable. Equally, the state of the current global economy means businesses are also in the process of reducing their overheads and will be likely reviewing the cost of travel and expenses at board-level. These factors combined means that, even as borders open and health risks reduce, the time for physical meetings may have passed.

The bad

So is it all roses? No. There have been concerns around the personal / human element of dealmaking being lost – management teams are not able to test or build chemistry with their investors, and discussions feel more transactional and sanitised. Likewise, the loss of ceremonious in-person closing dinners has meant the excitement around closing is reduced to a ‘confirmation’ or virtual happy hour (at least until social distancing restrictions are lifted). And while these are not necessarily process requirements, they are part of the parties’ relationship building experience.

Equally, there are risks associated with the reliance on technology. Though cloud-based platforms and communication technology has proven to be highly reliable, on a local level, reliance on internet connections has thrown up new challenges. As people have been forced to work from home, local broadband has been pushed to its limits, especially in smaller towns and rural areas. When tackling sensitive or urgent deal requirements, an unreliable internet connection could cause additional stress and potential issues.

The ‘up and coming’

While many things are uncertain post-Covid, the benefits of virtual dealmaking are clear. For forward-leaning businesses and PE firms, transactions will likely continue to benefit from the efficiency and international access that virtual processes offer, and perhaps include crucial in-person elements only where necessary. So as the world recovers in its ‘new normal’ state, so too will deal-making.

[1] Mergermarket, Q4 2019 - https://www.mergermarket.com/info/publications?page=1

 

This article is for informational purposes only and is not, and may not be relied on as, investment advice.