Building relationships virtually
Rose and three others who spoke about closing transactions and integrating companies during the pandemic said that some of the personal interactions that often make deals happen were at risk of being lost in the virtual environment.
“The loss of that personal connection, sitting in a room with the other side when there is a hard discussion — that we haven’t figured out how to make up for,” Rose said.
Having long-term relationships with the other side can pay off. Sharon Van Zeeland, Director, Corporate Development Operations, Rockwell Automation, noted that Rockwell builds relationships with potential acquisition targets over time. That long-term approach paid off when the company closed two significant transactions during the pandemic.
Rockwell had already signed the purchase agreements before the pandemic hit but found that there were hurdles in executing the deals during the lockdown. One acquisition was in Italy, which is a very face-to-face culture, Van Zeeland said. In both cases, Rockwell found individuals in the target’s country to put on-site during the sign-to-close period to help manage the relationships, while also continuing virtual discussions with management.
In fact, maintaining the personal touch in a remote environment can take a great deal of creativity. EY recently helped facilitate a fully remote transaction close and integration. According to Elizabeth Kaske, Principal, Strategy and Transactions, Ernst & Young LLP, the approach incorporated extensive use of video calls and encouraging one-on-one discussions to build relationships.
There was even more than typical engagement and accountability from C-suite management in the integration, as managers had fewer distractions than would normally be the case, Kaske, who led the engagement, said. Several Day 1 must-have items were also accelerated due to concerns about pandemic-related volatility in the industry.
While the pandemic is making it harder to meet with executives in person, Bradley Brown, Director, Private Equity, KKR, said that he is instead having more introductory calls with CEOs and CFOs, since he is not spending time on an airplane. “It’s a good time to build relationships that will pay off down the road,” he said. KKR has signed and closed numerous deals during the pandemic.
Remote due diligence
Much of the due diligence in an acquisition is already being done virtually, which can help with a remote closing and integration. In the integration that Kaske led, due diligence had been completed and much of the data was already set up in such a way that it could be leveraged into a virtual clean room.
Brown noted that private equity investors are increasingly moving to more data-intensive due diligence, leveraging advanced analytics to assess large amounts of data, often in areas that were previously out of scope for traditional diligence. This includes analysis of computer code and historical transaction-level data, which can all be performed in a remote environment.
Companies have also been creative in managing site visits during due diligence. In some cases, P&G has been able to conduct virtual plant tours when it was divesting, with the buyers being able to ask questions of those conducting the tour. In cases where a physical tour is necessary, P&G has considered a “double signing” period, which would allow it to notify employees of the sale in the timely manner required by labor law, but still giving the buyer a chance to come to the facility and engage with employees later, when appropriate, before the deal closed. The challenge is to “engage with employees at the right time in a respectful manner,” Rose said.
The well-being of employees is at the forefront of dealmakers’ minds. In Rockwell’s case, the company paused its two deal processes when the pandemic hit to make sure that people at the companies, they were acquiring, were healthy and safe and to collaboratively figure out the next best steps, Van Zeeland said.
Board meetings have also become remote during the pandemic, Brown said, noting that he expects that some board meetings will remain remote even after the pandemic.
Uncertainty puts pressure on valuations