December 18, 2020

DealTech: Deal Volumes Resilient to COVID-19 – VDR Insight Analysis

By Rupert Cocke 

Deal volumes have proved surprisingly resilient to the COVID-19 pandemic in recent months, creating a sense of optimism for 2021, according to providers of virtual data rooms (VDRs).

SS&C Intralinks saw a 43% increase in logins from September to November, co-head of business Bob Petrocchi said. This correlates with increased levels of early-stage M&A, he said, adding that volumes are expected to increase worldwide in the first quarter of 2021.

The most interesting trend was “the minimal impact made by COVID-19,” Petrocchi said. The platform registered a short but intense dip at the end of 1Q20 and the beginning of the 2Q20, but it only lasted two to three weeks as markets “came roaring back” by April, he said.

Meanwhile, new projects on Datasite’s platform began to rise in June and July and then soared in August to November, CEO Rusty Wiley said. Deals also tend to have more content, he added.

One of the trends on this platform is “increased rigor around environmental, social and governance (ESG) factors,” Wiley said. Another trend for the year ahead will be debt-driven restructuring deals, with special purpose acquisition companies (SPACs) as an alternative, he said.

Admincontrol, which is strong in the Nordic region, sees tech deals as being hotter than ever, head of VDRs Mari Nygard said. This corresponds with the global digital shift as a response to the pandemic, she said, adding that home-delivery businesses are growing exponentially and seeking capital.

Admincontrol’s head of VDRs Mari Nygard 

How have user volumes progressed over the fourth quarter across your platform?

We saw a clear increase in new data rooms activated in 3Q20, a trend that has continued in 4Q20. We had an increase of 33 % in activated portals in the past three months, compared to 2019.

In addition to that, we also see that many of the projects that were put on hold in the European spring were restarted again during the fall, and we have been seeing an all-time high in user volume on Admincontrol’s data room platform at the moment.

Based on this information, can you make any projections for the first quarter of 2021?

M&A is cyclical, and we usually see two peaks, one in the European spring and one in the autumn. But 2020 has deviated from this typical trend with large parts of the market being on hold during the spring and unusually high levels of activity in the fall. I cannot recall having seen such a long-lasting peak as the one we are seeing at the moment.

Normally, I would expect a dip at the start of a new calendar year, and a new peak starting around March. Due to the very high activity and the general situation that we are all coping with, I expect that we will see something like what we did in the summer – that people use the opportunity to take a well-deserved break from work. This would result in a slow-down in activities towards the end of December and I would expect low activity levels for a month or so. However, I still think that there are a lot of deals in the making and it would not surprise me if activity starts peaking again earlier than normal in1Q21, maybe even in early February.In general, I think we will continue to see high M&A activity levels going forward, both due to the distressed situation for some companies, but also due to the new opportunities that arise from the accelerated digitalization, changing consumer behaviours and new demands triggered by the pandemic.

Have you spotted any interesting trends recently?

We have a large user base in the Nordics, which makes us well equipped to spot trends in this region. Besides the general activity levels described above, we have spotted a few trends:

  • Tech is hotter than ever, which corresponds with the global trend and the accelerated digital shift due to the pandemic; 
  • Companies with a home-delivery business model are growing exponentially and are raising funds to get the capital they need for accelerated growth. This is also a global trend, that may be even stronger in the Nordics than globally due to the relative maturity of this business model in the region. There were already several players in this market, i.e. when it comes to groceries, baked goods, and pharmaceuticals as well as companies focusing solely on doorstep delivery. 
  • Many energy deals, due to regional developments and changes in policies, focus on green energy. In Norway we see an accelerated shift from oil to clean energy and especially when it comes to wind farms. 
  • We have seen more real estate transactions than usual in Norway. This might be related to the record low interest rate and a strong price increase on real estate (general increase of 10% reported for Oslo in 2020).

Datasite’s CEO Rusty Wiley 

How have user volumes progressed over the fourth quarter across your platform?

Since the M&A market upturn began in June, new projects on Datasite’s platform have climbed steadily, rising 11% in July and close to 20% in August, September, October and November compared with the same periods a year ago. Additionally, deals have had more content, as evidenced by the increase in the number of pages per project on the Datasite platform. When compared to the same period a year ago, pages per project have increased by at least 15% year-over-year. This is, in part, a result of increased diligence on the back of the uncertainty and risk-aversion brought on by COVID-19, as well as increased rigor around environmental, social and governance (ESG) factors.

Based on this information, can you make any projections for the first quarter of 2021?

Because Datasite’s platform hosts information about deals at their inception, the number of new projects on our platform gives us an indication of where deal volume is, and where it is going. There are a variety of economic, governmental, and medical factors that will impact M&A activity in 2021. Chief among them is the availability of a safe and effective COVID-19 vaccine, according to the results of a recent Datasite survey. The results show a majority of 200 accounting, finance and corporate development professionals in the US believe a vaccine, alongside the possibility of an additional government stimulus, will dictate M&A over the next 12 months. And, while a second stimulus package is still stuck in negotiations, refinancing and the renegotiating of debt is expected to rise, contributing to an overall increase in deal volume next year. The prospect of tax reform under a new Biden administration, which accelerated deal volume in the latter half of 2020, is also expected to play a role – yet a minor one – in US M&A.

Have you spotted any interesting trends recently?

There will be shifts in the global M&A market. M&A professionals who participated in Datasite’s survey expect the Asia Pacific region to become the biggest target region for M&A investment by deal volume in 2021, driven by domestic tie-ups and technology deals. Additionally, the increased use of special purpose acquisition companies (SPACs) will continue to shape capital transactions, especially as a desirable alternative to restructuring.

To complete deals in 2021, dealmakers will also need to investigate and mitigate ESG concerns, as they are expected to be the biggest factors to derail a deal, as well as the business risk to move up the most on due diligence checklists in the new year. And, as additional stimulus packages are still being negotiated, the reality of refinancing and renegotiating debt is expected to rise. Indeed, while deal volume is expected to increase next year, the biggest percentage of that activity is expected to come from restructurings.

Still, combined with favourable interest rates and the availability of capital, M&A activity in 2021 is set to increase. Organizations that are deal-ready and can execute quickly will be the winners in the coming months.

Drooms

How have user volumes progressed over the fourth quarter across your platform?

User logins are increasing and during Q3-Q4 reached all-time high levels on Drooms.

Based on this information, can you make any projections for the first quarter of 2021?

The trend from previous years is seasonal and will slow down in December over the holidays and starts picking up again mid-January.

Have you spotted any interesting trends recently?

Unique users and file upload activity are both rising whereas activity was flatter during the summer after the first COVID-19 wave. I expect that there will be a similar effect after the second wave we are currently experiencing on top of the regular seasonal effect mentioned previously.

iDeals Solutions

How have user volumes progressed over the fourth quarter across your platform?

In Q4, we have seen a strong rebound of M&A activity. With that, the number of clients we have is steadily increasing, even surpassing pre-COVID levels.

Based on this information, can you make any projections for the first quarter of 2021?

We are looking at the global economic situation optimistically. With its recovery, we expect to keep this pace of growth. However, with more distressed opportunities emerging on the markets, we cannot exclude even better results than we expect.

Have you spotted any interesting trends recently?

Businesses are quickly learning how to operate in the ‘new normal.’ In terms of M&A, we can see that lots of companies are now looking at non-traditional ways of closing deals and are looking for additional options for the participants, such as alliances, partnerships, and joint ventures. Travel restrictions and switching to online activities, paired with the remote trend, have made flexible and user-friendly VDRs attractive, even for those who prefer to conduct M&A deals offline.

SS&C Intralinks’ co-head of business Bob Petrocchi 

How have user volumes progressed over the fourth quarter across your platform?

From September through November 2020, we have seen a 43% increase in logins compared to the same period of last year, as well as double digit percentage increases in unique users over the same period. This correlates directly with the increased amount of early-stage M&A activity we are seeing on our platform.

Based on this information, can you make any projections for the first quarter of 2021?

Our latest forecast for 1Q21 volume, at midpoint, (compared to 1Q20): APAC +27%; EMEA +20%; LatAm +22%; NA +5%; Worldwide +18%. 

Have you spotted any interesting trends recently?

The most interesting trend is the strength of the markets, and the minimal impact made by COVID-19. We saw an intense, but short, dip in deals in late 1Q20 and early 2Q20 as the global lockdowns started, but that really lasted only about two to three weeks and the markets came roaring back in late April, showing no signs of headwinds, globally. We can’t speak about the quality of assets and types of deals that are starting diligence, but all players in the market, strategics, sponsors and lenders, are forging full steam ahead.

VDR Insight is a new initiative from DealTech (formerly known as M&ATech), a regular feature that covers technology trends aimed at M&A professionals. If you would like to give us any feedback, please contact [email protected]

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