A big part of the due diligence process in mergers and acquisitions has traditionally involved face-to-face meetings among buyers, sellers, and M&A advisors—along with touring business facilities. The COVID-19 pandemic brought much of this to a screeching halt.
Buyers and sellers were left with little choice but to perform due diligence virtually, using digital meeting tools like Zoom, Microsoft Teams, and WebEx. Now, more than two years after the start of the pandemic, virtual M&A has become not just accepted but preferred by many business buyers and sellers. This would have been unthinkable just a few years ago.
Fast acceptance of virtual M&A
Braden Willis, a managing director of healthcare M&A for Truist Securities, says M&A parties have adopted virtual due diligence much faster than he would have anticipated before the pandemic.
“Most market participants realized we really don’t need to do all the things involved in a sale process face-to-face like we traditionally did before,” he says. “A lot of benefits have emerged to virtual M&A over the past couple of years.”
Even before the pandemic, the need to conduct due diligence in person was limited. “In many industries, an on-site visit is primarily a tour of office space,” says Willis. “When it comes to a successful M&A transaction, much of the due diligence work can be done remotely, during the early stages of the sale process.”
Willis stresses that the same activities occur with virtual M&A as with traditional M&A. “We’re not skipping any steps in the sale process,” he says. “We’re just accomplishing these steps faster, easier, and more efficiently.”
Benefits of virtual M&A
There are several virtual M&A benefits, starting with cost savings. Virtual M&A saves money on airfare, hotels, meals, and other costs associated with business travel.
More importantly, it’s easier to schedule meetings virtually, and more people can participate in meetings and be involved in due diligence. “Unlike a face-to-face meeting, there’s almost no limit to how many people can participate in a virtual meeting,” says Willis. “So, you can bring more subject matter expertise into your meetings and allow more people to hear things first-hand.”
Potential drawbacks of virtual M&A
There are a few potential drawbacks to keep in mind. With limited face-to-face meetings, the social aspects of deal making can sometimes be lost. “In situations where existing leadership is remaining with the business, both sides getting to know each other is an important part of the diligence process,” says Willis. “That is difficult to fully replicate with virtual tools.”
Virtual M&A also tends to put a greater demand on senior management’s time early in the due diligence process. “Buyers expect more virtual face time with sellers since all it takes is a video call instead of hopping on an airplane,” says Willis.
And without in-person site visits and management meetings, some deals can be subject to cancellation as the parties get to the heart of issues and challenges faster. In a survey by Deloitte, 78% of companies and private equity investors said they scrapped at least one deal in 2020, and 46% canceled three or more deals.1