By Bob Chiarito
The impact of the COVID-19 pandemic has changed the way dealmakers do business, and some of the virtual fixtures are here to stay, according to several high-profile dealmakers that converged in Chicago at Mergermarket’s US Corporate Development Summit Wednesday.
Over the last 18 months, dealmakers navigated the challenges of making deals with travel restricted, on-site visits severely curtailed and employees primarily working from home. While restrictions slowed M&A for some, Euan Rellie, a managing partner at BDA Partners, a global investment banking advisor focused on Asian markets, said his company has been “on a tear” for the last two years.
“We do not want to stop doing business just because of the pandemic,” Rellie said. “Somehow or another, you hire local advisors, you use videos including video tours of factories and so on, whatever it takes. People moved remarkably quickly to accept the notion of doing deals virtually. And I think as a banker selling businesses, we’ve been more efficient.”
For the last 18 months, more firms seem to have adopted the course of action that Rellie described, and the proof is in the pudding. Despite not being able to conduct on-site visits, more deals got done in the first nine months of 2021 than ever before. Total deal value for 1Q-3Q21 reached USD 4.51tn, the best first nine months on record —and with only three months remaining, 2021 should smash 2007’s full-year record of USD 4.61tn.
“I think we’re going to come out of this as a whole a lot smarter,” said Carl Allegretti, president of Arbor Investments, a private equity firm focused on food, during a panel on improving productivity in the M&A market. “I’m a guy who prefers to close a deal face-to-face, but Zoom facilitates an awful lot behind the scenes. We can travel a lot smarter and when we need to travel, we will travel.”
Although several deals over the last two years have been done with the help of electronic signature applications like DocuSign and over virtual platforms, Allison Leopold Tilley, a partner at global law firm Pillsbury, said the need for in-person meetings is not going away.
“I think the pandemic forced everyone to do a lot more virtual diligence, do a lot more Zoom meetings,” Tilley said. “I do have clients who will not buy anything unless there is a face-to-face meeting between the executive team. But that’s one and it used to be a lot.”
However, for the "excessive negotiations of a deal," meeting virtually can be more efficient, Tilley said.
Trish Skoglund, director of M&A at Crowley Maritime Corp, agreed, saying in-person meetings remain essential, especially as restrictions ease.
“Site visits are back," she said. "You need to go kick the tires in order to see what you’re buying."
And while technology has increased the speed of deals for many, Allegretti’s firm refused to be rushed. Earlier this year, his firm demanded to wait to close a deal until it could meet in-person with the other party.
“We did not close a deal until this fall," Allegretti said. "We had a deal in Canada and we were really close. The seller backed off in June. When the world started opening up, we went up to Canada in September. We met face-to-face, which I’m still convinced is how deals get done. We would not close a deal without meeting face-to-face. We would not close a deal without doing a personal walk-through of the plant. That’s us,” Allegretti conceded.
Jeff Diehl, managing partner and head of investments at Chicago-based private markets investment manager Adams Street, summed up the remote versus face-to-face question succinctly, predicting that “more and more jobs that could be done remotely, that can be done from anywhere, will be done remotely.”
Another issue resulting from the pandemic is human capital issues for firms. With more employees demanding to stay home and making personal wellness more of a priority than ever before, recruitment and retainment has become a challenge for some firms. A good deal of acquisitions made during the pandemic have been focused on acquiring talent, several panelists said.
“Everyone is having problems hiring people. I wonder where all these people went,” Skoglund said, with a laugh. “So, I think talent acquisitions are harder.”
With dealflow moving quickly, many panelists discussed feeling strapped for resources, especially to successfully integrate an acquisition.
"I think that's the probably place that M&A suffered because of the pandemic," Tilley said. "It's not ideal to negotiate over Zoom, but it can be done. It's not ideal to do due diligence over Zoom, but it can be done. Integration virtually is extremely difficult."
However, Datasite, a technology company that automates M&A deals, used the pandemic to its advantage, realizing that technology like Zoom that bloomed during the last 18 months allowed them to widen their pool of talent geographically, resulting in them going on a hiring binge during the pandemic.
“We hired 200 people since Covid started," said Datasite CMO Doug Cullen, noting the figure represents 20% of the company's workforce.
Cullen did concede that while his firm was able to expand its workforce, going forward there is another challenge to having remote workers — maintaining relationships with them.
“Maintaining these connections is going to be a huge challenge for us,” Cullen said. “This business has predominantly been a face-to-face business.”
He added that it is essential that business allow its workers to focus on their own wellness going forward, which means more than just allowing a hybrid work environment.
“This is going to be the new normal,” Cullen said. "The emails are always there, it’s a global business. M&A never stops. So, I think the people that we have, we have to invest in them. We have to keep them as humans. That’s what I think will be the difference between the top performing businesses and the ones that are going to struggle.”