The Virtual M&A Boom

Boyden's perspectives on the news and trends that are transforming industries

During pandemic lockdowns, mergers & acquisitions (M&A) activity moved online. Investment bankers traded business travel for videoconferencing and discovered that with more free time, they could broaden the field of bidders and make more deals. Firms realized new efficiencies and significant savings, both on travel and time spent arranging visits. Now in-person meetings are back, but far less frequent. In a recent survey from Deloitte, more than half of companies and private equity investors said they now expect to manage most M&A virtually.

Other changes to the industry have resulted from the steep rise in technology adoption necessitated by the pandemic. Work that was formerly foisted on junior bankers has been automated through the increased use of big data and analytics. The once arduous due diligence process in particular has been transformed, with virtual tours and drones becoming common site inspection tools. AI has taken over the task of scrutinizing company documents. Due diligence data rooms have become standard.

The investment banking industry has also seen cultural change, much due to the demands of younger talent and the need to retain them. Employees everywhere now expect more flexibility, and many banks have instated hybrid work, albeit reluctantly. Firms have also raised salaries and offered bonuses, more time off, and other enticements to stop disillusioned young people from quitting the industry.

The latest M&A boom came in 2021, putting this “kinder, gentler model of dealmaking to the test”, according to The Economist. The value of global M&A was driven to a record high of $5.9trn, primarily by private equity buyouts and special purpose acquisition companies (SPACs). Market data firm Refinitiv reports that the annual fees of dealmakers, which surged by nearly 50% to more than $48bn last year, accounted for nearly a third of all investment banking income.

For all the benefits that virtual dealmaking has bestowed, the boom has showed that it also has limitations. Deloitte’s survey findings suggest that without in-person site visits or management meetings, deals are more likely to be cancelled. The majority of respondents, 78%, scrapped at least one deal in 2020, and 46% cancelled three or more. And despite many tedious tasks being automated, young bankers still often work overlong hours and fall prey to burnout.

There is also the issue of bankers being supplanted by technology if larger segments of the M&A value chain are automated. Banks lose their information advantage as data becomes more readily available. Even before the pandemic, tech firms such as Apple and Facebook acquired firms without banks. Spotify and Slack went public without underwriters. Most firms lack the resources to manage the process internally, and relationship building still has an important role to play. But in many other respects the new model of M&A is here to stay.