The New Normal - M&A Evolution
As M&A opportunities continue to stack up, how can Private Equity investors sign off on deals with fewer face-to-face meetings with coronavirus-related travel restrictions? The new normal is utilizing video conferencing to evaluate much of the due diligence requirements, including executive meetings.
Even though an eventual face-to-face meeting will be important for the M&A principals, a lot of progress can be made to keep the PE pipelines active. With remote working becoming standard in many industries post Covid19, this is now an easier transition for evaluating transactions.
Asian Venture Capital Journal (AVCJ) reports:
Finding the right balance between offline and online communication for completing due diligence processes is a tricky endeavor for PE and VC investment professionals.
“I don’t think you can get 100% of what you would normally get, but we were surprised by how much we got and how we were able to make progress without ever having physically met the cast of characters nor having been able to visit facilities,” says Alex Emery, head of Asia at Permira. He adds that the vendor went as far as to schedule no-agenda “chats” with senior executives to help build up some personal rapport.
Remote working has become a feature of all business activity in recent months and this enforced change is likely to have a lasting impact on how people approach travel, pursue process efficiencies, and find ways to collaborate. Private equity is no exception.
Reengagement points
The need for a face-to-face meeting goes both ways as well. “Most companies are not going to just say here are all my financial statements, management accounts, and the secrets of my business,” says Kyle Shaw, a managing director at Shaw Kwei & Partners. “The company needs to feel comfortable that people at the PE firm will be discreet and want to get the deal done. They need to know it will be somebody they want to spend time with.”
“You have to be local and talk, meet, dine, and drink with the people every day to get to know one another. From February to the middle of March, it was difficult to build that kind of connection with a new entrepreneur just through a laptop screen,” says Wei Zhou, a managing partner at China Creation Ventures (CCV).
That does not mean workarounds are impossible. CCV was busy in the lockdown months even if the work involved more video calls, split-screen conversations, and e-mails of scanned copies of signed documents.
The remote way
In the meantime, people have gotten used to a new normal. “We’ve become more efficient because we don’t have to wait for face-to-face meetings,” says Jun Tsusaka, founding partner at Japanese private equity firm NSSK. “For the legal and accounting due diligence, for example, maybe there were 20-30 in-person meetings and it will go down to 5. You already have virtual data rooms, so a lot is already being done remotely.”
Reliable information?
However, the use of non-financial data needs to be considered carefully. “As the landscape of alternative data sources continues to increase and grow more complex, vetting the authenticity and quality of these data sources will become more important in gaining transparency in these businesses,” adds Jun Tsusaka.
“Unfortunately, there is still too much reliability on desktop due diligence, particularly in emerging markets where there is a lack of information generally,” says BRG managing director Stuart Witchell. “A bigger component should involve interviews with reliable senior sources that have access to the information you are looking for.”
At SecurCapital, we have been operating remotely for the past 4 months. We actively process incoming M&A opportunities by assisting buyers and sellers with their M&A workflow. Whether companies need deal management, legal support, due diligence assistance, help with post-merger (PMI) process, we provide assistance to streamline M&A processes and achieve optimum results for all parties.
