“Everything came to a standstill, period,” one M&A adviser recalled when the pandemic hit.
When global lockdowns came into effect last year, it was not uncommon to hear industry figures make ominous remarks about their future. There just wouldn’t be any way that deal would ever go through without a firm handshake. New prospects simply wouldn’t open without the opportunity to see into the whites of your eyes and build a trusting relationship. Due diligence, done remotely, would simply be a leap too far. When trying to navigate the rampant chaos of Covid, it would be impossible for executives to have the time to engage in merger discussions.
Or so the arguments went.
Admittedly, the timing of the pandemic was far from ideal for any profession. But many dealmakers in the city — who had already weathered several uncertainties, including the Brexit referendum, an election that could have seen Jeremy Corbyn come to power and fuel geopolitical tensions — looked ahead with great optimism as we entered 2020. In March 2020, M&A activity reached its lowest level since the financial crisis, a hint of pessimism was understandable.
However, those who took the deal by the horns were well rewarded and will continue to be. Those who bowed to the lame arguments that predicted the demise of M&A were wrong. Because now, with the first five months of the year all passing $500 billion in deals, we’re in the hottest market since Refinitiv started collecting its numbers.
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The reasons that happened can be easily confirmed by those on the ground. Moving the process online was just a barrier, especially for long-term relationships.
Another M&A consultant notes that “when you’ve been working with a client for 10 years, you don’t really feel the need to see them.”
In any case, due diligence on financial, compliance and legal issues is often largely done online, but where relevant information is exchanged through secure digital channels.
“The numbers are still available. They have not changed because of Covid,” says the consultant.
Far from making deals more difficult, in many ways it has made the art of merger easier. Those on the coal front report that they saved a tremendous amount of time traveling to multi-party face-to-face meetings that, it turns out, were never really needed in the first place.
If you’re concerned about leaking details from your discussions and breaking up delicate relationships, then you can also keep your head off a bit. It’s much easier to run a virtual process discretely; there are no visitor logs to keep track of your activity, no accidental passages in lobbies being passed around, less loose-lipped drinking sessions between those in the industry comparing notes.
Yes, in the immediate aftermath of the Covid-19 outbreak, management’s time and energy was sucked into dealing with entirely new workforce dilemmas. But what the absence of office did was focus the minds of many leaders on the future of their business. What is our plan for the future? Are we really ready to take on the next challenge?
For many, the answer became clear: we still have some irons in the fire. Unfortunately, there would also have been some foreclosures – businesses that, instead of making a purchase to monetize a new strategy in the wake of Covid-19, had their backs broken by the last straw of the pandemic.
Even before the coronavirus, private equity firms were sitting on a huge pile of cash – $1.5 trillion to be exact. That has only increased during the pandemic; Preqin estimates that North America alone has about $976 billion worth of dry powder.
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All that money has to find a home somewhere. In some cases, it has to find a home sooner than you might think; with the boom in special purpose acquisition companies that has coincided with much of the pandemic, those vehicles are being put on a timer to find a target within two years.
That Spac tree could well weaken at some point. But how long can the broader deal boom last? I bet there’s plenty of time for those involved to learn the lessons of the pandemic and embrace the new world of dealmaking.
To contact the author of this story with feedback or news, email Justin Cash