How the Pandemic Has Impacted M&A

By Rusty Wiley, CEO of Datasite

This month marks a full year since the World Health Organization called the coronavirus outbreak a pandemic. The virus has affected everything from the way people live, to how and where they work. Thankfully, vaccines are now available globally and more and more people are receiving them every day. This is good news as we can finally look forward to life after the pandemic. Still, the pandemic has highlighted how crucial technology has become and will continue to be in delivering services, engaging with customers, and ensuring business continuity.

Take the mergers and acquisitions (M&A) industry for example. At the beginning of 2020, new M&A activity on our Datasite platform, which facilitates about 10,000 deals a year, or 20% of all global volume, was up 10% compared to the previous year. However, by the end of March, just as COVID-19 was declared a global pandemic, we saw a downturn in activity of about 3% year-over-year with continued softening into April and May. Deals stalled as buyers pivoted to focus on their existing businesses as well as better understand the long-term impact of the pandemic. Financing from lenders dried up for the same reasons and fears of lower valuations stalled deals. Distressed deals rapidly increased, rising from 7% of the deals facilitated on our platform to 30%, by the end of April. At the end of May, new projects on our platform, or deals at their inception, were down by over 30%.

However, in June, we started to see activity pick up again, especially from strategic buyers and a resurgence from the middle market. New projects on our platform were up 11% in July, compared to the previous year, and continued to soar throughout the second half of 2020. In fact, new deal projects on our platform rose by 19% on average for the next five months.

One reason for the M&A recovery in the second half of 2020 was that dealmakers remained ‘deal ready’ throughout the pandemic. Being ‘deal-ready’ ensures that, even if due diligence timeframes are compressed, projects can proceed at an accelerated pace when the time is right, and the likelihood for successful deal completion remains high. Still, in some instances, the process of completing M&A was being prolonged by increased rigor during diligence and expanding content areas like environmental, social and governance (ESG) factors. In fact, in the last 12 months, pages on our platform are up 19% versus the same time a year ago. 

Another reason why dealmaking roared back was because of technology. Despite all the interruptions the pandemic created, companies and their advisers became increasingly adept at using remote technologies, including video conferencing, virtual data rooms and sometimes even drones, to conduct their negotiations, market their assets, prepare for a sale and conduct due diligence,

Finally, continued favorable interest rates, access to capital and a safe vaccine have combined to create improved investment conditions. Since the start of the new year, new projects on our platform, through February, are up 32%. And because we see these deals are at their inception, versus announcement, this is a good indicator of what’s ahead.

Going forward, this means more deal volume and higher valuations, which may also mean more competition for dealmakers. Both sell side and buy side dealmakers can lean into technology to help optimize valuations and acquire the best targets. For example, sellers can use tools that speed up the M&A process, including providing the right information to a potential buyer and being able to prepare documents quickly, to ensure a successful outcome. Buyers can use some of the same tools to help them lead their far-flung teams from anywhere at any time.

More competition also means dealmakers will need to use a wider set of tools. Some are broadening their options to include corporate venture capital, partnerships, minority stakes and other vehicles including private investment in public equity (PIPEs) and special purpose acquisition companies (SPACs). In fact, a recent poll on exit trends and opportunities in private equity showed that over 72% of dealmakers polled said they have or are considering a SPAC as an exit option.

While nobody can predict the future, one thing is certain. Dealmakers’ willingness to embrace new technologies and tools during the pandemic will undoubtedly lead to more efficient, effective, and resilient dealmaking in 2021 and beyond.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.