Business fundamentals drive investment cases, but deal making depends on softer factors: People, connections, collaboration, sentiment and confidence. All of these factors have been altered by COVID-19 and the lockdown. In such an environment, how can you keep the competitive edge?
- COVID-19 has obliged investment banks and financial institutions to adopt new working practices. Those that have already taken steps towards digitalization have a distinct advantage.
- Employing technology in this new environment is far more involved than simply slick information-sharing. Physical, human interaction and pushing the boundaries of deal making capabilities need to be replaced using digital capabilities.
- While COVID-19 has created a valuations mismatch between buyers and sellers, and a sense of new risk awareness, this will eventually give way to a new world of deal terms and financing.
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COVID-19 has caused fundamental changes to working practices in banks and financial institutions, and one of the most significant is in technology and the shift to virtual working.
The extent to which you are able to work together with your team, collaborate with your partners or showcase clients and business cases remotely has become a material factor.
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In other words, it’s all about digital.
Investment banks that had taken large steps towards digitalization now have a clear advantage. Laggards will need to make up ground fast. Innovators are running virtual IPO roadshows, remote due diligence and site inspections using drones and cameras, and management presentations from their kitchens.
Why data is critical for deal making
Data, and easy access to the right data, is critical.
When there is uncertainty in the markets, the demand for information rises exponentially. Deal makers with access to high quality data have a distinct advantage. Refinitiv Workspace for Investment Bankers is a powerful, smart and customer-centric solution designed to inform the investment banking community at all times.
In the current environment, technology isn’t just about information-sharing or data analytics — there is a real human factor to be taken into account. After all, almost everyone involved in a deal, and on all sides, most certainly will not be in an office and will not have the option to have a face-to-face discussion without a screen involved.
Watch: The Virus Effect on M&A — The Corona Correction
Meanwhile, anyone with the rare pleasure of working on a significant deal during COVID-19 knows that ‘Zoom-fatigue’ is not fake news. It turns out that the mental pressure of focusing on human faces (rather than, say, numbers) on a screen, particularly amid a detailed technical discussion, is non-trivial.
Two widescreen monitors at home are now de rigueur: One to view the speaker or what they are presenting, the other to see the gallery. Generally, the intense pressure and high stakes of a deal making environment can expose generic collaboration tools as inadequate.
Buyers’ market
Even once you’ve got your head around the ‘plumbing’ of a deal, what’s coming down the ‘pipeline’ is now quite different.
Clearly, it’s a buyers’ market, with the caveat that — at the time of writing at least — many stock markets seem to be pricing-in little more than a blip. How this plays out in the cut-and-thrust of M&A will be telling.
For now, big is not beautiful. Distressed is never beautiful. But cash-constrained, COVID-hit, yet-otherwise-sound businesses may find a long queue of cash-rich private capital suitors at their door.
At least that’s the theory.
But bringing buyers and sellers together on valuation, when credible macro scenarios range from a short-lived recession to the worst depression in several decades, will require some deft influencing skills and even better finance-raising skills, particularly since glad-handing and personalized tours of facilities are now off the table.
While some buyers have retreated and bowed out of deal making to focus on shoring up internal operations and balance sheets, buyers will have to come back eventually. Private equity will lead the way; over $1.5 trillion in dry powder is waiting to be put to work.
Will deal making look different?
The landscape may just look very different in the near future. Financing will not be an after-thought. Deal terms will undergo a revolution. Covenants will be tightened, while warranties and earnouts will be as popular as hand sanitizers.
What do winners look like in a world like this?
They are adaptable, naturally. They have access to insights in a meaningful and actionable format. And they will be supported by systems and tools that have been designed, not merely to replicate analogue practices, but to offer a meaningful advantage over them.
Discover Refinitiv Workspace
Designed with the future of investment banking in mind, and in a rapidly changing and competitive market, Refinitiv Workspace is a powerful, smart and customer-centric solution built precisely for deal professionals.
It integrates with your workflow and sharpens your edge through insights, speed and intuitive navigation bringing you the content and functionality you need.
Refinitiv Workspace enables you to find the content you need straight away.
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