What are the biggest changes to technology M&A and M&A processes in the UK due to COVID-19?

The move to exclusively digital deal-making was one of the biggest changes we saw in the UK during lockdowns. However, things are rapidly returning to pre-COVID levels of in-person meetings, particularly for key negotiations.

Another change is the speed of some deals, driven by the increased demand for quality tech assets. We have seen some aggressive pre-empting of processes to cut out the competition and completing what would normally be a process of a few months to a matter of weeks.

M&A speed relies heavily on increased use of underlying data as part of M&A processes. Thus, when preparing for a deal process it is crucial to have the data presented in a way that is easy to analyse in several different ways to a granular level. This is more important for a PE investor than a standard Information memorandum as they have probably met the company and understand what they do.

At the same time, the use of different types of content, including video and data, throughout pitch decks and presenting your value proposition has become more common.

What new challenges and opportunities do technology companies and investors face today?

Since the summer of 2020, the technology M&A market has been unbelievably active. It has been one of the busiest periods in my twenty-year career.

Interest is very strong when talking to the companies and investors we interact with at BDO UK. One of the driving factors on the investment side is PE firms’ increased appetite for technology across almost all sub-industry spaces. Simultaneously, the capital available for deployment by corporates is at an all-time high, with new market participants like SPACs entering the fray.

For technology companies, it leads to a seller’s market. If a technology company is considering raising additional capital or the management team is considering an exit, the options are wide open. One challenge is determining which type of investor, and specific investors, suit your company and culture.

On both sides of the negotiation table, the situation leads to an increased need for getting the deal preparation right. To execute a rapid deal, it is crucial to have all the work well underway before launching a process. One area where new challenges often arise is in relation with the increased data demands from potential investors as mentioned above. Sometimes a company’s financial systems are not capable of pulling out the required data in granular detail and hence this is a big focus on our pre-launch work.

As would be expected with a seller’s market, earn outs and contingent structures are less common as whilst an acquirer or investor may prefer that structure the number of counterparties wishing to acquire the business means these can be negotiated away by competitive tension.

What are some of the biggest impacts on the financial, audit and tax sides of technology M&A deals?

Probably the biggest change in recent years, beginning before COVID-19, has been  the marked increase in focus on ESG and sustainability, including specific ESG due diligence in  M&A processes. Checking a company’s record and initiative in relation to environmental issues, supply chains, worker’s rights and more is another area where both companies and investors are increasingly focused.

What do you think the future of technology M&A – and M&A processes – looks like?

Right now, we are in a hybrid world and many aspects of M&A remain in a state of flux. We are not going to experience a hard reset to pre-pandemic times, but certain aspects of deal-making will likely change back toward previous times. In-person meetings is one area where this will likely be the case, as its much more efficient for certain negotiation meetings in particular which can make the processes more efficient . 

Anecdotally, we have seen that be the case in a recent deal where a US investor flew in, met the company, and was ready to sign then and there. This is an example of what might be on the horizon. The investor had done all the necessary due diligence via data analytics but wanted to meet in person, perhaps to check chemistry and on the x-factor of the management team. All other aspects had been handled electronically thanks to the availability of data.