The sudden shift to remote work during COVID-19 has accelerated the use of technology in deal-making, and many digital tools are expected to stick after the crisis abates, according to market participants.
The lockdowns imposed in the early stages of the pandemic forced M&A teams across investment banks, asset managers, consultancies and legal firms to switch from in-person meetings, due diligence visits and presentations to video conferencing and remote due diligence tools in a matter of days.
Many have adopted new technologies or accelerated digitization across their organizations, and some say they have been engaging with clients even more actively than before the crisis. Nobody expects M&A to become an entirely virtual process, but this may lead to permanent changes in the way deal-making is done in the future.
New opportunities in legal tech
"E-signatures and e-signings have become the norm," Daniel Turgel, partner at the global M&A and corporate practice of White & Case, said in an interview. "The move to e-signatures, in particular, was taking too long to penetrate into the more traditional industries, but I think we will see things change for good."
The lack of access to physical documents during COVID-19 has underscored the importance of digitizing information, Troy Pospisil, CEO of U.S.-based legal technology company InCloudCounsel said in an interview.
Demand for legal technology solutions will increase as a result of the crisis, he said. The digitization of contracts will become more popular as many companies still have all of their documentation "in physical form in a file cabinet" somewhere, which makes due diligence challenging "if you can't get on a plane," Pospisil said.
One particular growth area is likely to be tech tools for extracting and summarizing specific data from contracts stored in the cloud. Having quick access to the right data from contracts or other types of documents relevant to the M&A process can make things a lot easier, especially in a time of dislocation, Pospisil said, adding that InCloudCounsel has seen more interest in solutions like this.
HgCapital LLP, a U.K.-based private equity fund specializing in software investments, also expects to see more demand for the products of the legal tech companies in its portfolio as COVID-19 has heightened the need for digitization in the legal sector, which historically has lagged other industries in technology adoption.
"In a world of e-signatures, online collaboration and remote closings, it seems archaic to go back to physically sending documentation back and forth," Hg's legal team wrote in a recent post.
Match-making is hard in virtual heaven
Many companies have successfully carried out M&A during the lockdowns even though COVID-19 caused deal-making to slow to a crawl in the first half of the year. The success videoconferencing has had as a substitute to in-person meetings has demonstrated it could be used more frequently in the future. But people in the market doubt physical interaction in M&A will abate or disappear.
Video conferencing technology such as Zoom has made remote working amid the coronavirus pandemic easier.
"In a business that to some extent is based on trust — deciding when you believe what someone is telling you and when you need to dig deeper — it's going to take a while until people do not want to complement the video with a meeting in person," Tim Ingrassia, co-chairman of global M&A at U.S. bank Goldman Sachs Group, Inc. said in a recent Goldman podcast.
Remote deal-making, however, has helped Goldman Sachs "move things faster," as the team could arrange more meetings with clients per day because they did not have to worry about logistics. The bank has used videos on handheld devices, and even drones for facility tours during the due diligence process. Some of these tools will stick around after the crisis, Ingrassia said.
As virtual negotiations have become standard practice during the lockdowns, the pressure to travel "across the City or even the world for certain negotiations" has diminished, Turgel said.
"I don't think there will be an automatic need to physically get together to progress a deal in the new normal," he said, but added that face-to-face meetings will always have their place.
A relationship business
"The main issue with remote M&A negotiations is that deal-making has always been a relationship business," Tristan Nagler, managing director of Aurelius Equity Opportunities in the U.K., told S&P Global Market Intelligence.
"For us to invest in an asset we typically develop a rapport with those involved over numerous meetings across a number of months [...] and the reality is that this is much harder to do over video conferences," he said.
Deal-making is like online dating, where "algorithms and data can be part of determining compatibility, but that doesn't necessarily mean the two parties will prove to be the perfect match and decide to get married," Nagler said.
"Videoconference platforms have played their part in the past few months, but returning to in-person meetings will of course give momentum to ongoing M&A processes and we expect to see a pick-up in deal flow at all levels of the M&A market as lockdowns continue to ease," he said.
"In the near term, decisions may be taken to slash business travel — Zoom is here to stay. Ultimately though, the most critical meetings, whether boardroom or M&A, require us to look one another in the eye."
If remote viewings remain, drones will be "nice-to-haves" but after lockdown the best due diligence will continue to be on-site, Nagler said.