DealTech: Prep Data Shows M&A Market Still on Feet After Barrage of Blows – VDR Insight

Analysis 06:15 EDT, June 23 2022

VDR Insight is an initiative from DealTech, 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]       

Global dealmakers have taken a series of unexpected punches in the first half of the year, but virtual data room (VDR) providers say early-stage deal prep suggests that the M&A market is still on its feet.   

It typically takes six months to get from a vendor downloading the first documents to a VDR to a deal announcement. This makes VDR activity a key bellwether for future trends in M&A. 

Russia’s invasion of Ukraine, soaring energy prices, supply-chain disruption, rampant inflation and the end of negative interest rates are all worrying trends for dealmakers, particularly when taken together.   

However, new projects are up 11% year over year (YoY) for the first five months of this year, according to Datasite’s CEO Rusty Wiley. Telecoms, media and tech (TMT) and defence deals are coming down the pipe, he added.  

Meanwhile, although M&A appetite is contracting a little, it is holding up better than equity markets, according to SS&C Intralinks’ Co-Head Ken Bisconti. Bidders are drawing on dry powder and pursuing “disciplined and strategic” approaches, he added.   

Key trends include a handful of successful dealmakers generating substantial numbers of deals, according to Admincontrol’s Head of Data Rooms Mari Nygård. Private equity and venture capital firms continue to dominate the world of M&A, according to iDeals’ Chief Revenue Officer Alexander Khlevniuk.  

by Rupert Cocke, with analytics by Jonathan Klonowski  

Datasite’s CEO Rusty Wiley 

How has the volume of new VDRs on your platform progressed through the first half of the year?     

Global geo-political tensions, supply-chain disruptions, labour shortages and the rising cost of capital, among other challenges, will likely continue to keep markets volatile in the near term. Almost 80% of 150 dealmakers who attended a recent Datasite webinar said inflation and rising interest rates are the biggest headwinds affecting M&A right now. Yet dealmakers remain active, and global M&A on our platform continues to be strong. 

Global new projects, or deals at inception rather than announced, are up 11% year over year (YoY), for the first five months of this year, with the technology sector continuing to lead the way in terms of total deals. New global TMT M&A projects on Datasite’s platform are also up 6% YoY for the first five months, as digital transformations and the need to fight cyber-crime continues to power activity, while new global industrial, transportation and defense projects rose 20% YoY in the first five months, powered, in part, by increased European defense spending.   

Given that it takes an average of six months to close a deal from opening a VDR, what do you think deal volumes will be like in the second half of 2022?   

There are several tailwinds prompting M&A, notably the availability of corporate and private equity capital. Corporate and strategic buyers are pursuing both vertical and horizontal acquisition opportunities, while private equity buyers are well-positioned to acquire companies with strong cash flows, high barriers to entry, or favorable environmental, social, and governance (ESG) credentials.   

Companies are also examining their balance sheets to make sure they have sufficient liquidity to weather current market conditions. While some may need to consider strategic repositioning, including restructuring or divestitures, others will look to continue to build and protect their businesses by using their liquidity to grow. Efforts to deglobalize and re-onshore could also provide new investment opportunities. All of which bodes well for M&A activity. We expect activity on our platform to finish 10%-15% ahead of last year.   

Have you noticed any interesting trends recently?     

Last year deals got bigger while times to complete them compressed. The opposite is happening this year. Dealmakers are still moving forward with M&A but are spending more time on due diligence and the time to complete deals is lengthening. In fact, the median length of time for a new project to close on our platform is up 5%. We can also see that the rate of questions and answers between potential buyers and sellers has climbed, as dealmakers focus on uncovering anything that could lead to post deal value destruction.   

Cybersecurity is increasing in importance as hacks and ransomware attacks become ever more common. Buyers best avoid acquisitions that might result in the acquirer becoming their customers’ weak link by conducting necessary in-depth cyber-risk scoring of targets as part of due diligence. ESG considerations are also looming larger in the diligence process. Deals are still happening, and we still expect to see new projects on our platform finish the year ahead of last year.