Lean into Technology: The Best Way to Manage Soaring M&A
By Rusty Wiley, CEO of Datasite
What a difference a year makes – particularly this past one. In the last three months alone, global dealmaking has soared, with deal value setting a new record for highest first quarter total. First quarter deal volume has also increased in a striking contrast to last year’s first quarter, where mergers and acquisitions (M&A) activity ground to a near halt as dealmakers and businesses absorbed the effects of lockdowns on both global and regional economies.
A confluence of factors, including favorable interest rates, the wide distribution of safe vaccines, and access to capital – powered in part in the US by the Biden administration’s $1.9 trillion Covid relief bill – have resulted in improved investment conditions. This is reflected firsthand in the influx of new projects we are seeing at Datasite, which facilitates close to 10,000 deals annually. Currently, fiscal-year-to-date new projects, which are deals at their inception rather than announcement, are up by 60% in the US year-over-year.
Dealmakers broaden their options
This increased activity is, in turn, leading to higher valuations and a more competitive environment for business and dealmakers everywhere. In response, some dealmakers are broadening their options to include corporate venture capital, partnerships, and minority stakes. A recent survey of more than 590 dealmakers, including 225 from North America, found that more than 40% of M&A professionals are working on one or more less-traditional transactions, such as a partnership or restructuring.
Dealmakers are also turning to special purpose acquisition companies (SPACs) and private-investments-in-public-equities (PIPEs), the last leg of fundraising in the blank-check lifecycle. Last year, SPACs raised over $75 billion, nearly twice the amount they did over the past decade combined; and more recently, accounted for 17% of global deal value in Q1 2021. The faster timelines, reduced pricing risk, and opportunity to work with experienced management teams make SPACs a viable exit option.
While the volume is almost exclusively in North America, there are signs that SPACs are going global. Just three SPACs deals were completed in Europe last year, but that is expected to change throughout 2021. Results from a global survey of more than 180 global finance, accounting, and corporate development professionals found that Europe is expected to see the biggest boom in alternative listings, such as SPACs, in the next 12 months. Additionally, a growing number of Asian sponsors are backing US-listed SPACs, while Hong Kong and Singapore iron out rules to enable SPAC listings on their own exchanges.
Technology is key to successful outcomes
Whatever transaction dealmakers are working on now, the key seems to be using technology to optimize the outcome. For example, SPACs are making the buy-side environment more difficult because they are increasing the ways good targets can exit, making it harder for buyers to acquire those targets. Buy-side dealmakers can speed up the M&A process and deal oversight by using technology, such as purpose-built tools to help buyers track and manage their deals, and tools that can help dealmakers lead their teams remotely, which remain pain points for many companies.
On the other end of the spectrum, sell-side dealmakers can also leverage technology to optimize valuations. Tools that can speed up the M&A process, including providing the right information to a potential buyer or even being able to prepare documents quickly, can influence an outcome. Right now, due diligence is taking longer in some instances, as sellers are struggling to determine whether EBITDA, if determined without an adjustment for the financial impact of COVID-19, will provide an accurate representation of a company’s value. The sell-side needs to understand how and when their timelines may be compressed and apply technology to keep them ahead, so they are deal ready.
Q2 2021 and beyond
The global distribution of COVID-19 vaccines and a brighter macroeconomic outlook have certainly raised dealmaker optimism in the first quarter. This trend is expected to continue, given the influx of deals on Datasite’s platform, alongside new government initiatives, such as a massive US infrastructure plan. With greater certainty in the market, confidence amongst businesses and dealmakers is returning. As the year continues, dealmakers need to make sure they have the right tools to seize the moment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.