Corporate Development Outlook: Inventive but Disciplined "New Normal" in M&A

By Abby Roberts, Sr. Director, Product Marketing

As the COVID-19 pandemic recedes, activity is resetting to a “New Normal” in M&A circles.

The second of a quarterly roundtable series, Datasite’s Q2 Corporate Development Outlook: Benchmarks, Best Practices, and the New Normal, explored key themes and learnings brought on by the pandemic pivot. The roundtable included live audience polling and discussed corporate development priorities in the coming months.

One key theme: no one expects to return to the office any time soon. When polled, 38% of the audience said they plan to come back to the office two to three days per week within the next three months, and another 30% only when required. Though some large corporations are not rushing back to the office yet, others have returned to full time as we have, said Scott Hile, Sr. Director, Corporate Strategy & Development at renewable energy company Enviva. 

They may not be in the office, but corporate development is busier than ever. “We're seeing some pretty healthy deal flow and optimism coming back,” said panelist Byron Bardy, VP of Corporate Development & Strategic Alliances at digital experience platform company ON24.

Even as work becomes normalized, the panelists expect M&A activity will be affected by the changes brought by the pandemic. The M&A market has been very active, but since the COVID-19 emergency, companies are ramping up even more, said Ivan Golubic, Managing Director of M&A consultants Gamma Corporate Development.  Before COVID, many were focused on organic growth, and now they’re more receptive to making strategic deals.

“Now we're seeing a lot of more creative thinking around: ‘Well, it's harder to reach customers, so let's combine forces,’ both in consolidation, as well as expanding technologies and products,” he said. Similarly, companies are increasingly focused on domestic acquisitions, rather than international deals, as they became more locked into their domestic markets during the pandemic.

The panelists agreed that many sectors have been affected by the pandemic and will see consolidation and deal activity. Hile noted the pandemic has boosted interest in renewable energy, which should lead companies’ dependent on fossil fuels to look at alternative energy companies. Golubic noted a number of electric automakers have launched recently, so “they're going to be primed for consolidation within the next few years.”

Bardy pointed out the lockdown led to an explosion of virtual events, which should work to the advantage of several startups in that segment. His company expanded its work on virtual due diligence during the pandemic, replacing days-long meetings with a combination of pre-recorded videos and remote sessions with line-of-business leaders.

Golubic noted virtual meetings have cut both ways; while it’s easier to connect with the right people virtually, deals seem to be taking longer to complete, he said. The industry is leveraging virtual project management tools to streamline many processes around dealmaking, but also showing a “more rigorous process around the deal flows.” Hile noted that his company recently closed a large acquisition started before the pandemic and was able to do it “without any hiccups, amazingly. And it was only because we had those processes and playbooks in place.”

Rigor in due diligence is still a best practice, according to the panelists, with discipline extending to deal structure and valuations. “SaaS industry multiples have been on a roller coaster” from lows during the onset of the pandemic to hitting highs in early 2021, said Bardy. 

The panelists argued that earnouts and carveouts may have their place to balance the expectations of management teams, institutional investors and venture capitalists involved. “The appetite for earnouts really depends on a risk tolerance of a buyer or a seller,” said Golubic. 

The pandemic has also left its mark among the issues around deal-closing. Culture clashes are expected to be the biggest challenge to integrating acquisitions, mentioned by 63% of those polled, followed closely by attrition, with 35%.  

“The hard work of integration of cultures is going to be more and more challenging because you see a lot of divergent approaches to the work environment,” said Hile.