• February 9, 2023

How the Pandemic Has Impacted M&A

From Rusty Wiley, Datasite CEO

This month It’s been a full year since the World Health Organization labeled the coronavirus outbreak a pandemic. The virus has affected everything from the way people live, how and where they work. Fortunately, vaccines are now available worldwide and are being used by more and more people every day. This is good news because we can finally look forward to life after the pandemic. However, the pandemic has highlighted how important technology has become and will continue to be in service delivery, customer loyalty, and business continuity.

Take, for example, mergers and acquisitions (M&A). At the beginning of 2020, new M&A activity on our Datasite platform, which enables about 10,000 transactions per year, or 20% of total global volume, increased 10% year over year. However, by the end of March, when COVID-19 was declared a global pandemic, there was a roughly 3% drop in activity year over year, which continued to weaken through April and May. Business stalled as shoppers focused on their existing businesses and better understood the long-term effects of the pandemic. Lender funding has dried up for the same reasons, and lower valuation fears have brought business to a standstill. Distressed deals grew rapidly, increasing from 7% of deals enabled on our platform to 30% by the end of April. At the end of May, new projects on our platform or deals at the beginning fell by over 30%.

However, activity picked up again in June, particularly among strategic buyers and a recovery in the midmarket. The number of new projects on our platform rose 11% year-on-year in July and continued to grow in the second half of 2020. In fact, new deal projects on our platform grew an average of 19% over the next five months.

One reason the mergers and acquisitions rebounded in the second half of 2020 was that the dealmakers persisted ‘Deal ready’ during the pandemic. The readiness to do business ensures that projects can be completed faster at the given time, even with shortened due diligence timeframes, and that the likelihood of a successful deal remains high. However, in some cases, the process of completing mergers and acquisitions has been prolonged through increased diligence during due diligence and the expansion of content areas such as environmental, social and governance factors (ESG). In the last 12 months, the pages on our platform have increased by 19% compared to the same period last year.

Another reason dealmaking roared back was technology. Despite all of the disruptions caused by the pandemic, companies and their consultants have increasingly been able to use remote technologies such as video conferencing, virtual data rooms, and sometimes even Drones, conduct their negotiations, market their assets, prepare for a sale and conduct due diligence,

Ultimately, continued favorable interest rates, access to capital and a safe vaccine all combined created better investment conditions. Since the beginning of the new year, the new projects on our platform increased by 32% until February. And since we see these deals at the beginning versus the announcement, this is a good indicator of what is ahead of us.

In the future, this means more business volume and higher valuations, which can also mean more competition for the dealmakers. Both sell-side and buy-side dealmakers can rely on technology to optimize valuations and achieve the best goals. For example, sellers can use tools that expedite the M&A process, including providing the right information to a potential buyer and preparing documents quickly to ensure a successful outcome. Buyers can use some of the same tools to lead their far-flung teams anytime, anywhere.

More competition also means that dealmakers have to use a wider range of instruments. Some expand their options to include corporate venture capital, partnerships, minority interests, and other instruments, including private investments in public equity (PIPEs) and special purpose acquisition companies (SPACs). Indeed a new one survey Regarding exit trends and opportunities in private equity, it was shown that over 72% of the dealmakers surveyed stated that they had or were considering a SPAC as an exit option.

While no one can predict the future, one thing is certain. Dealmakers’ willingness to use new technology and tools during the pandemic will undoubtedly lead to more efficient, effective and resilient doing business in 2021 and beyond.

The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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