M&A In The Age of Covid-19: FAQs (Part 3)
Since the start of the outbreak in March 2020, Hampleton Partners has provided tech business owners with regular webinar updates regarding M&A prospects in the age of Covid-19.
In this blogpost, we have compiled some of the questions frequently asked in our webinars.
How will the current situation impact advisor fees?
The situation will not impact advisor in fees in structure but might do in size, since advisor fees usually are structured around transaction size. If valuations taking a dip, advisor pay goes down too. In that respect, you can see the interest alignment of advisors like Hampleton fight to get a high valuation for any transaction.
What sort of time commitment should a management team make during various phases of the process?
Time commitment from the sell-side management team depends on the phase you are in. Initially, time invested is limited, as the advisor handles much of the work to ensure things are adequately prepared. This is when outreach towards potential buyers would occur.
As the process advances and management meetings are scheduled, more time will be required from the management team. It’s difficult to put an exact number or percentage on this because it may vary substantially from one process to another.
The latter part of the process is more time-intensive for the management team. In reality, it’s why management teams hire an advisor in the first place: to ensure that they can run their business and deliver on the numbers while the process is being run with and for you.
Do you see the shift from general towards “technology-only” deals as a permanent change?
Yes. Most industries are moving towards technology in the long run. In the short term, Covid has only reinforced the pre-existing shift towards technology.
Many sectors are controlled by tech nowadays. For instance, marketing is not marketing without digital marketing anymore. Automobiles were previously centred around metal and engines, but now most manufacturers transact with startups and software companies.
How will Covid affect the development of direct-to-consumer (DTC) trends?
Covid will strengthen the baseline trend of companies and manufacturers getting closer to the end-consumer and establishing direct contact. The DTC trend will filter into almost all verticals and across all company sizes.
Larger conglomerates such as P&G, Unilever or Beiersdorf can afford to engage both in retail distribution and DTC. They can build new software, stacks and processes themselves, and in addition can acquire two or three DTC brands here and there.
Large companies will also be DTC-driven because of environmental awareness and legislation, as brands will seek to gain more control over their product and service lifecycles. Nike, for instance, has stopped doing business with Amazon altogether. Now, 25 to 30 per cent of Nike’s turnover comes from DTC business. In August 2019, the company acquired Select to help them manage customer data, as they believe data will help them tailor and improve their DTC business.
Smaller companies must decide whether to attempt the “shift to DTC” on their own, or partner with/acquire a DTC brand.
Ultimately, companies are taking various paths but are all aiming to get closer to the consumer.
Are we experiencing a peak in valuation for collaboration tools?
No, we think there is further to go. Collaboration tools will remain one of the foundations of the post-covid private and public sector infrastructures. It will become a segment at the core of enterprise vendor offerings.
One of the experiences of Covid – and with millennials coming into the workforce – is that people are going to demand flexible working, which organisations will increasingly provide as a way to reduce property costs and plenty of other associated overheads, such as workplace canteens. This in turn will spur the creation of better solutions.
In addition, we will see solutions address specific issues in vertical markets. Collaboration in the manufacturing industry might not be the same as collaboration in the consulting industry. These niches will be exploited by new entrants. This again will drive a new wave of M&A as those innovative new entrants to marketplaces are snapped up by the existing major players.
Contact
Contact Hampleton Partners for a confidential conversation regarding any of your merger and acquisition or corporate finance needs with one of our Directors or Sector Principals: https://www.hampletonpartners.com/contact/.
About Hampleton Partners
Hampleton Partners is at the forefront of international mergers and acquisitions and corporate finance advisory for companies with technology at their core. Hampleton’s experienced deal makers have built, bought and sold over 100 fast-growing tech businesses and provide hands-on expertise and unrivalled advice to tech entrepreneurs and companies which are looking to accelerate growth and maximise value.
With offices in London, Frankfurt, Stockholm and San Francisco, Hampleton offers a global perspective with sector expertise in: Artificial Intelligence, Autotech, Cybersecurity, Digital Commerce, Enterprise Software, Fintech, Healthtech, HR Tech, Insurtech and IT & Business Services.
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