European M&A keeps its frantic pace

Round­table atten­dees
Birg­er Beren­des, co-head of M&A for EMEA, Bank of Amer­i­ca
Julia Craw­ley-Boevey, head of EMEA M&A, Dentsu Inter­na­tion­al
Stephen Long, head of M&A, TMF Group
Bob Petroc­chi, co-head of busi­ness, SS&C Intralinks
Claire Wills, Lon­don man­ag­ing part­ner, Fresh­fields Bruck­haus Deringer

How has the past year been for M&A?
CW: We did have a pause when we first went into lock­down. After that pause it became a com­plete­ly fran­tic M&A envi­ron­ment — and it still is.

BB: Absolute­ly. I would say the first cou­ple of weeks into the pan­dem­ic things briefly slowed down. But then as soon as the Fed opened its bal­ance sheet and Euro­pean lead­ers said “what­ev­er it takes,” that jump-start­ed the mar­ket again.

And what about val­u­a­tions?
SL: It is dif­fi­cult to com­pete in some process­es. It’s a hot mar­ket, but as a trade buy­er you rely on the fact that you should under­stand the mar­ket bet­ter. Fun­da­men­tal­ly, you just have to be dis­ci­plined. So there are cer­tain process­es now that we choose not to com­pete in because we know it’s going to be a feed­ing fren­zy. And we work hard­er to find bilat­er­al oppor­tu­ni­ties with tar­gets that see the ben­e­fit of work­ing with a trade buy­er.

JCB: It is dif­fi­cult. There’s a huge gap between sell­ers’ and buy­ers’ expec­ta­tions. We’ve seen some com­pa­nies that came to us pre-Covid that took them­selves off the mar­ket and are com­ing back, and they’ve got the same val­u­a­tion expec­ta­tions. It’s not that those don’t stand, but what is the norm now?

BP: Yes. Jus­ti­fy­ing the mul­ti­ple seems to be an inter­est­ing part of the deal right now. You can see that rigour in the amount of back and forth [between buy­ers and sell­ers]. It’s just dif­fer­ent than we’ve ever seen. There is a lot more work going on.

CW: I think that’s right. There is a lot of exam­in­ing legal doc­u­men­ta­tion these days. There is a lot of com­pe­ti­tion for [great busi­ness­es] and peo­ple are hav­ing to be very thought­ful and com­pet­i­tive on deal terms.

Is pri­vate equi­ty dri­ving up val­u­a­tions?
JCB: The down­side of the pri­vate equi­ty boom is that it’s dri­ving up mar­ket expec­ta­tions. So even though a poten­tial tar­get won’t actu­al­ly seek pri­vate equi­ty invest­ment, they will hap­pi­ly take the com­pa­ra­ble deal stats. It’s kind of a mis­match.

BB: But on the oth­er hand, they are flush with port­fo­lio com­pa­nies, and they’ve pre­pared lots of com­pa­nies for sale in the spring to sum­mer last year which were then held up. Come September/October, every­one was rush­ing to resume those sales process­es because no one knows how much longer so much liq­uid­i­ty is going to be in the mar­ket.

What about so-called blank cheque vehi­cles, known as SPACs?
BP: It real­ly hit more sig­nif­i­cant­ly in the US mar­kets. It’s slowed down a bit, but it’s been almost 10% of our new deal flow for the past three months. It’s been sig­nif­i­cant.

How dif­fi­cult has the move to remote deal-mak­ing been?
CW: You can do deals on a remote basis, you can have effec­tive man­age­ment pre­sen­ta­tions, you can have effec­tive nego­ti­a­tions. But is it as much fun? In some respects, it’s quite per­son­al because you’re look­ing inside people’s homes. On the oth­er hand, I think there is maybe some inef­fi­cien­cy from when you would nor­mal­ly all get togeth­er.

JCB: Yes, it’s not easy. One of the things I love about M&A is those ini­tial meet­ings where you are get­ting to know some­one and you have a real­ly great con­ver­sa­tion. You can do that over Zoom, don’t get me wrong. But it’s dif­fi­cult when your inter­net cuts out or a door­bell goes. There is some­thing about it which doesn’t quite work. As a peo­ple-per­son, not being able to meet peo­ple face-to-face is tough.

SL: Yes, it def­i­nite­ly has slowed things down towards the end of the process. I think when you get to the lat­ter stages of any nego­ti­a­tion, the abil­i­ty to lock peo­ple in a room for 24 or 48 hours and just get it done is quite an effec­tive tool.

Are clients using data rooms dif­fer­ent­ly?
BP: It’s clear when we look at the pat­terns of the usage of data rooms year-on-year, we see that the hotspots are in qual­i­ty assur­ance and legal dili­gence. The oth­er thing we’re see­ing is a lot of video files and drone footage being stored in data rooms because phys­i­cal site inspec­tions are kind of an impos­si­bil­i­ty, espe­cial­ly for cross-bor­der deals. It’s real­ly about man­ag­ing larg­er data files across the data room.

Will things go back to how they were before?
BP: My flight miles were through the roof. I’d like to go down to maybe 50% of what I was doing before. I don’t think I’ve lost all that much from an effi­cien­cy stand­point. But there’s a bal­ance — you still need to be able to see peo­ple to know what’s hap­pen­ing.

SL: I think one of the fac­tors that will play into what hap­pens next is the CFOs of all the face-to-face com­pa­nies that we work for. Peo­ple con­vinced CFOs that, “I have to do this [meet­ing] face-to-face, oth­er­wise it won’t work.” But over the last 12 to 15 months, we’ve realised that’s just not true.

Are you expect­ing to see any decrease in activ­i­ty?
BP: We have a mas­sive pipeline of deals that are going to start to hap­pen. So I don’t think there’s going to be any break.

CW: I am antic­i­pat­ing there will be a bit of a sum­mer lull. But I think it’s going to be a very, very busy autumn into the end of the year.

BP: I agree with that. What we tell our teams is that we hope in the last two weeks of August it will slow down. And we would expect peo­ple to take vaca­tion as much as they can because I don’t see the veloc­i­ty abat­ing. In Sep­tem­ber, we’ll be right back where we are at
the moment.

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