Virtual deals – The new norm
Nearly two years ago we were thrust into the world of ‘virtual’ deals – deals where every aspect of the transaction is conducted electronically, with no ‘in-person’ engagement at all between the vendor and purchaser or their advisers.
This meant endless Zoom/Teams calls on all aspects of the transaction, from management presentations, to due diligence, to deal negotiations. Our observation is that these processes often left purchasers feeling a little uneasy that they hadn’t had the chance to really get to know the management team properly or to get a ‘feel’ for the business, before committing to the transaction. While deals still got done, there was that lingering doubt.
In early 2021 we started to see a return to what we would classify as normal transaction processes, especially for entirely New Zealand based transactions, with in-person negotiations, management presentations and site visits. However, as borders remained closed for all of 2021, any transaction that had a cross border element continued on a virtual basis, and once lockdowns hit in the second half of the year, all transactions reverted to this basis. As noted earlier in this M&A Forecast, the deal flow in 2021, especially in the second half of the year, reached levels that we hadn’t seen before. This put a lot of pressure on client deal teams and adviser teams to be as efficient as possible when it came to managing ‘virtual’ deal processes.
What have we learnt?
So after nearly two years of virtual deals, what are some of the key things we’ve learnt about how to run an efficient virtual transaction process?
- Time spent planning the transaction process and a realistic transaction timetable is time well spent. This includes scheduling standing Zoom/Teams calls on the various workstreams so that time isn’t wasted trying to align diaries. However, Zoom fatigue is real and just because a meeting is scheduled it doesn’t mean it has to be held it if there is nothing to discuss.
- A short weekly all parties call with an agreed agenda to discuss workstreams is helpful to keep teams focused and on track – nobody likes having to admit on a Zoom call that they haven’t done something they promised to do.
- Virtual due diligence, especially legal, tax and financial, can become frustrating for vendors. Vendor due diligence reports help with this, but we’ve also found that Zoom calls with advisers and clients shortly after the electronic data room is opened to explain the contents of the data room and answer questions about what may be missing is helpful and prevents unnecessary and repetitive Q&A. This is often useful as an add on to the management presentation. Anything material that comes out of this call can be confirmed as necessary in targeted responses to specific follow up questions in the electronic Q&A. From our perspective if you’re acting for the purchaser, the key follow-up to this call is to find out what actually matters to your own client (and, as importantly, what doesn’t matter), and focus on those key aspects.
- Unless the transaction is being run through financial advisers, regular Zoom/Teams calls between clients/senior management help build relationships that would otherwise develop during in-person meetings. Don’t underestimate the value of these.
- Even though it’s a virtual process, don’t try to do everything by email. There’s still no substitute for picking up the phone to resolve simple queries quickly and efficiently.
- Be careful that you don’t end up negotiating the entire SPA by email, as you may end up conceding points you don’t need to. If you and your client are well prepared, negotiations with the other side over Zoom can be just as effective as an in-person negotiation.
In our view, virtual deals are becoming the new normal and even when borders re-open we think that well planned and executed virtual transaction processes will be the preferred route. However, this will be combined with site visits and in-person meetings between purchasers and the management team/owners – although we think that these will largely be relationship meetings rather than in-person negotiations regarding the transaction terms.