by Baker McKenzie

Digital transformation driven by M&A: what are the legal implications?

The pandemic has presented some challenges for dealmaking, but as tech M&A continues apace, the digital transformation of companies is gathering speed

The pandemic has impacted the M&A market, but with six of the largest ten global deals made in August of this year involving tech sector targets1, companies clearly have their sights set firmly on digitalisation. Inevitably, with the shifts the business world has experienced this year, dealmaking is happening against the backdrop of increased regulatory scrutiny and legal ramifications.

“The Covid pandemic hasn't created an entirely new dynamic around digital transformation,” explains Michelle Blunt, Head of Baker McKenzie’s London IP team, “it's just accelerated a lot of the thinking that companies were already doing.” With tech giants such as Amazon, Apple, Facebook and Microsoft all announcing deals despite the turmoil created by Covid-19, there is no doubt activity is hot. However, what has changed is the way these deals are being made, with a shift towards virtual management meetings and remote due diligence. This new way of doing business is especially relevant given the fast-paced nature of the sector.

Tech startups are by character very nimble and lean, and culture is an important factor in these transactions. The absorption of these assets into a larger company can mean “a new reality for founders in particular, who were once masters of their own universes,” says Lisa Fontenot, Partner and M&A Specialist in Baker McKenzie’s Silicon Valley team. The implementation of an onboarding team can help iron out any cultural concerns, which is particularly important in a remote world.

In this fast-moving market compliance and due diligence is vital, and the lawyer’s role is more relevant than ever. The demand for increased digitalisation in companies shows no sign of abating and the war for talent is highlighting the impact of different legal regimes as deals are done. “Lawyers are helping our companies because they're doing a lot of the forensics,” says Reshma Sohoni, Co-Founder of London-based platform Seedcamp. “They're really digging in and figuring out what's open source, what's acceptable and what's not.”

With tech at the forefront for companies adjusting to an increasingly digital world, M&A in this sector continues to be strong. For deals to be successful the legal considerations are vital.  As Lisa Fontenot notes, “The dividing line between tech and non-tech continues to get blurrier and blurrier, which creates opportunities for all.”

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by Baker McKenzie
M&A in the wake of Covid-19: strategies for a healthy business

Several months into this global pandemic and businesses are facing a pivotal moment. Government reinforcement from bailouts and support schemes has been quick to land, but despite this injection of liquidity, the global economy will shrink by 5.2 per cent this year according to the World Bank, triggering the deepest recession since the Second World War. To avoid becoming a casualty of the pandemic, businesses must instigate a robust evaluation of their own operations to capitalise on the opportunities available.

Thorough company health checks are always a good idea, but with Covid-19 reshaping the business world, they are more important than ever.“To have real transformation you need to be rigorous day after day,”points out Christophe François, Senior Partner at McKinsey & Company. Although it has been a slow half year for the M&A market, experts forecast significant accelerated investment opportunities prompted by a wave of distressed M&A.

During the lockdown dealmaking required creativity, with site visits conducted by drone and IPO roadshows done virtually. Other challenges have been harder to manage, though, and businesses have had to deal with interrupted supply chains, demand issues and rapidly changing government support and restrictions. However, as Ai Ai Wong, Global Head of Baker McKenzie’s Transactional Practice Group and Chair of Asia Pacific region, notes:“Nothing is going to stop people making deals if they are determined, and all the more so when it becomes defensive.”

Activity is being driven by a bid to increase balance sheets, shore up portfolios, create resilience and take advantage of attractive deals, and it is being facilitated by end-to-end digitalisation. Fuelled by significant liquidity in the market, companies are focusing on new partnerships and business structures to weather this storm. Low interest rates and availability of funds in the market means that businesses are in a position to pounce, with private equity and family companies predicted to fare well.

“Boards are considering transformative M&A,” says Nick Bryans, Partner in Baker McKenzie’s London M&A team.“They are offloading assets to focus on core operations, and ridding themselves of assets performing badly.” As businesses attempt to recover from the crisis, there is a golden opportunity to go to market, raise funds, bolster portfolios and mitigate the effects of the pandemic. However, this window is closing. As François explains: “It’s winners that make bold moves in portfolio investments. It’s time to make bold moves.”

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