How does the merger and acquisition process operate in this time of COVID-19? The answer: it's virtual.
I've been asked by new Corum clients and their CEOs, how in today's COVID environment does the M&A process operate? They ask things like, "How can I get in front of people, see them, actually negotiate and do product demonstrations?" I tell them that Corum's Optimal Outcome process went virtual ten years ago, driven by a need for efficiency. Today it's a necessity. From the initial launch meeting, document creation, buyer list development, presenting management overviews of the company, to data room development, all of it can be done virtually. Even the negotiations of letters of intent and offers can be carried out virtually using today's advanced communications tools. Now, a majority of due diligence is conducted virtually with buyers and third parties.
Here are seven steps in Corum's virtual M&A process.
Step 1: Planning and Preparation
We perform our planning and preparation in a series of kickoff meetings with our global staff. Participants include our business analysts, writing analysts, buyer analysts, and many of Corum's dealmakers are all ex-CEOs. In these meetings, we review and allocate staff resources, set timelines, compile business and marketing plans, design presentation materials, and begin collecting due diligence materials.
Step 2: Research
Here we prepare buyers lists, buyer positioning, perform strategic analysis on different buyers, and do preliminary valuation work. Again, this is all done virtually using conferencing tools like Webex or GoToMeeting, and conference calls.
Step 3: Contact
This step has always been virtual. We create introductory correspondence, conduct dry runs on company presentations, execute non-disclosures and non-solicitation agreements, screen initial interest, set evaluation expectations, and refine the process based on feedback.
Step 4: Discovery
Discovery involves conference calls, virtual one-hour management presentations with buyers, virtual technology reviews, deep dives, setting up NDAs, finishing due diligence, and positioning for negotiations. Discovery is also a time for the seller to learn about the buyers. What's their position? How would they handle an acquisition of my company? Because many technology companies are global, discovery is ideal for a virtual process. The CEO may be sitting in one office, the CTO in another country, and the CFO somewhere else entirely.
Step 5: Negotiations
During negotiations, Corum organizes and hosts final virtual discovery meetings on various deep dives and technology areas, provides structure and evaluation guidance, and tries to create an auction environment that will drive an optimal outcome. During this time, Corum strives to bring multiple parties to the table with the same education at the same time. At this stage, buyers will provide letters of intent that will be negotiated, and the best buyer and agreement are chosen. This step is typically conducted by phone.
Step 6: Due Diligence
During due diligence, the data room is populated, which today is all electronic and happens early in the process. Before the letter of intent, certain data should be placed in the data room for examination by interested parties. Due diligence also means getting any needed outside opinions. For example, code often needs to be reviewed for any open source or other issues. Black Duck is a company that does this type of software review. They put your code in a secure cloud environment, then they review it and return a virtual report on their findings. There is also due diligence for technical and legal ownership and written explanation of your models. Then definitive agreements are negotiated and agreed on. Most of the legal agreements are negotiated over the phone with the seller's counsel, buyer's counsel, and Corum.
Step 7: Closing
Final reps and warranties are set up, escrow hold-backs determined, and final opinions received. Now, it's time for closing. But closing is not like in the old days or in the movies where there's a big event with twenty-five people in a room passing documents around and signing them. Today they're signed virtually. Then there is the payment and distribution, followed by the wire proceeds.
The New Norm
If you look at it from preparation to research, contact, discovery, negotiation, due diligence, to closing, it can all be done virtually. Corum has been conducting these virtual global M&A processes successfully for more than ten years. Our clients and the buyers that we interact with appreciate the efficiency of this approach. And the technology is here to make it happen. So given today's environment, virtual mergers are the new norm.