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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FT Due Diligence is a video channel analysing the fast-moving world of M&A, illuminating the trends behind the complex global transactions and how to unlock value from acquisition deals. The channel alternates between independent reporting from FT journalists and insight on global dealmaking from law firm Baker McKenzie.