Coronavirus (COVID-19) has led to greater reliance on digital platforms with the use of technology being fundamental to the way in which industries have operated during the last 16 months. Technology companies have produced strategies and new software platforms which other industries have relied on to weather the storm during COVID-19.
COVID-19’s reliance on the accelerated adoption of new digital platforms continues, with Satya Nadella, Microsoft’s chief executive, citing a “second wave of digital transformation sweeping every company and every industry”.
Technology
Technology has been at the forefront during the pandemic and comes in many forms – from remote working to the accelerated growth of digital supply chains. The rise in videoconferencing use is an example of this. Hopin, an online events platform, has raced to a $5.7bn valuation as worldwide lockdowns have exacerbated the demand for remote working. E-commerce has also had a stronger year due to the decline in face-to-face shopping brought on by COVID-19 lockdowns.
In June 2021, online marketplace Etsy acquired Depop, an online marketplace for fashion, for $1.625bn. The increase in online services and communities that facilitate our social and consumer habits have also led to greater demand for more robust and efficient cyber security protocols to protect these organisations and their users from harm.
For law firms, creative and often bespoke software packages and platforms offer efficiencies and cost reductions for clients. For example, M&A deals no longer require parties to sign documents in person. DocuSign offers e-signature which has allowed individuals the flexibility to sign agreements anywhere, anytime and at speed, and has brought environmental benefits. It proudly displays metrics on its landing page showing how much wood, water, carbon and waste organisations have saved as a result of not having to prepare documents for wet ink signature. Similarly, it has helped lawyers by simplifying agreement preparation, thereby accelerating the completion process.
Rise in technology M&A deals
According to PwC’s ‘Technology deals insights: 2021 outlook’, last year’s global technology M&A deals totalled $226.3bn. While this number was down on the previous year, $192bn of this came in H2. The outlook for 2021 is positive too, with many predicting a record-breaking year.
The pandemic certainly affected M&A activity in the first half of 2021. However, this was followed by a recovery at the start of H2. Since then, technology targeted M&A activity has been widespread. EY, in its ‘2021 Technology M&A and Strategy report’, found that 51 percent of technology executives say they plan to pursue M&A in the next year.
An area which has grown in importance is cyber security. Cyber crime has risen significantly in the UK due to cyber criminals exploiting uncertainty and fear in the market due to the COVID-19 pandemic. Inevitably, the shift to home working has offered new opportunities for criminal activity to prosper. Any security gaps in an organisation’s infrastructure can be leveraged by cyber criminals to launch an attack. This poses a greater threat for businesses financially and presents challenges in complying with data privacy regulations. Businesses need to prioritise their cyber risks and create a robust strategy for their cyber security needs.
Investors have embraced new technology companies with increased investment in the tech sector. Pitchbook has noted the rapid pace in which venture capital investment is flowing into cyber security companies. Private equity (PE) firms have also taken this in their stride as the pace of tech acquisitions has continued to rise. Unspent private capital and low-asset valuations present opportunities for PE firms to invest in distressed M&A.
The PE space has been focusing on investments and acquisitions in areas of technology, including healthcare, life sciences and tech-focused investments. The pandemic has reminded us how much companies in these industries are valued as assets that can provide great returns in the medium to long term. Target companies in this area will be looked at particularly favourably if they also display business resilience. According to EY’s ‘2020 Technology M&A Report’, 39 percent of technology executives believe that a key factor in determining future M&A strategies will be a target’s business resilience.
Looking forward
The pandemic has clearly altered the technology transaction market as we know it. Tech M&A deals will continue to rise even as we emerge from the pandemic. Another sector which will be prioritised will be environmental, social and governance (ESG). It is clear that politicians and investors alike have become increasingly interested in green and sustainable finance.
Alongside existing planet-friendly initiatives such as the UK government’s goal of being net carbon zero by 2050, the G7 summit took place in Cornwall recently and saw world leaders commit to turbocharging green economic growth as a priority. Whatever comes next, there is no doubt that the tech sector will be heavily relied upon and will continue to be right at the heart of tackling the global issues we currently face. Investors looking to the future will be keen to position themselves where they can benefit from the move to more green and sustainable ways of living.
The significant opportunities of ESG indicate that law firms will be required to advise their various clients about new legislation and will be expected to provide value in relation to how to adapt to a sustainable agenda. Law firms themselves will also have to ensure that they keep up with the pace, as their clients will want to see their lawyers making similar strides to remain in tune with their ambitions. The legal sector is already experiencing an expectation from clients that it demonstrates new ways of working sustainably, and this is a factor that will move higher up the agenda for clients choosing their legal advisers in the future.
James Klein is a partner, Olivia King is an associate and Danielle Joseph is a paralegal at Shoosmiths. Mr Klein can be contacted on +44 (0)20 7282 4009 or by email: james.klein@shoosmiths.co.uk. Ms King can be contacted on +44 (0)20 7282 4094 or by email: olivia.king@shoosmiths.co.uk. Ms Joseph can be contacted on +44 (0)20 7282 4061 or by email: danielle.joseph@shoosmiths.co.uk.
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James Klein, Olivia King and Danielle Joseph
Shoosmiths