The first few months of the COVID pandemic have been in a grim prognosis. Whole M&A teams got furloughed by big firms in accounting. A week in April became the first since the year 2004 when they announced mergers that were not worth higher than £770 million.
The Current Economy at a Glance
Since The Great Depression, the world is now experiencing an economic downturn that is most severe. It’s apparent that now is not the time for many houses in corporate finance able to thrive in digital growth and disruption to have their shops remain open as long as they put most of the M&A on a hold. It won’t be great if they spend millions on fresh talent and have their current employees on reduced wages.
However, all over the market, the activity and interest of the M&A have been in line with the predictions from the beginning of the year.
There is a strong overall desire for growth through the M&A as acquirers that are tech, digital, and data-oriented drive it. Most even get powered by the private equity that has a lot of cash.
With the demand for technology and skills that will allow for marketing and digital transformation, it is now way off the existing charts.
A lot of the agencies here - other than those who were unlucky having big clients in industries affected by the COVID pandemic - are now seeing an increase in their revenues and profits margins partly because of the lesser costs while on lockdown.
Since the demand of clients for these skills sped up because of the COVID pandemic, the same applies to the M&A.
Every type of acquirer, from consultancies in management and big technology to independents backed by PE, now sees this as an opportunity to have suitable targets in acquisition pursued including the scale and range of the services they provide expanded.
There is a side-effect that is unexpected because of the lack of travel that became evident because of the pandemic. This involves the faster progress of the M&A processes. The juggling of the international commitments in travel and diaries in C-suite got involved in the “courtship phase” of the normal times for the purpose of looking for dates so people can meet.
As time passes, you can have it multiplied by the frequency that principals should meet so you can explore the financials, strategic fit, and chemistry. Have this multiplied with the number of parties who are interested to become involved in this process and you may easily get indicative offers from your initial approaches within half a year.
Since principal decision-makers can’t travel and a lot of the interactions between people now occur online, this phase now occurs so fast as deep-dive meetings, follow-ups, and initial meetings are now happening in just three to four weeks.
Zoom is a tool for vide conferencing based on the web that people can use with a desktop and mobile. It lets users meet online which can happen with and without the video. People who use Zoom may have sessions recorded, each other's screens annotated and shared, and projects collaborated with others in a platform that can be quite easy for anyone to use. Zoom provides high-quality audio, video, including wireless performance of screen-sharing across H.323/SIP room systems, Linux, Mac, iOS, Blackberry, Zoom Rooms, and Android.
On the 18th of April 2019, Zoom because of an initial public offering, Zoom turned into a public company. It initially got priced at US$36 for every share. On the first trading day, its share price went up by more than 72%. By the end of its initial trading day, the company had a value of US$16 billion. Before its IPO, Dropbox was able to invest around 5 million dollars in Zoom.
Because of the COVID-19 pandemic, there has been a significant increase in Zoom usage for online social relations, remote work, and distance education. Numerous educational institutions had their online classes through the use of this application. In a lot of countries, the company was able to offer free services to many K-12 educational institutions. Last February 2020, this application attained 2.22 million users which was so much higher than what it amassed in the whole year of 2019. On just one day last March 2020, people have downloaded the application for 2.13 million times. On December 2019, the daily average users was around 10 million. This April 2020, the daily meeting participants increased to more than 300 million. Because of that, the stock price of the company rose even if there was a general downturn in the stock market. Earlier this January 2020, the stock was at $70 per share. By the end of March, it was able to increase up to $150 per share. The company now has a value of more than $67 billion as of June 2020.
Why is M&A not included even if all other types of important meetings now happen through Zoom and other applications?
Each of the mandates in sales that the SI Partners embarked on all over the world since March have gotten more than a single offer. Most of them were able to sign the Heads of Terms and are now deep when it comes to due diligence. One of them, the merger of Brightblue with MightyHive of S4 Capital got completed last August. This has been among the quickest sale processes that occurred in the past two decades.
Undoubtedly, the recent months proved without any doubts that finalisation of contracts, conducting of due diligence, and deal negotiation can be more efficient and faster to complete online.
Since this is the case, it is essential for businesses that embark on M&A processes to avoid taking the shortcut in the process of cultural alignment and building relationships. That is because this can be highly vital to the target and acquirer’s working relationship in the future.
Even if deals are now progressing at a much faster speed, we advise every client to invest a lot in this “chemistry phase.”
Nowadays, using the frequency and volume of conversations facilitated by the online world is essential for compensating the lack of personal communication between one person to another.
There is a high demand for what is out there. Whenever both parties become committed to invest in the setting of the foundations using the available tools for future partnership growth, it will become easier to seize upon any available opportunity and have it mobilised at a certain pace.
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