Utilizing Technology to Close Cross-Border M&A Deals During the Pandemic

The COVID-19 pandemic has not only affected M&A deal activity, it has changed the way in which deals themselves are conducted. Travel restrictions and lockdowns have meant that personal interactions between the key parties have become all but impossible. Building relationships and trust in a remote working environment is a challenge but critical to successfully closing deals. Marcus Rex, an Associate at IMAP Sweden, discusses why technology has become a crucial tool in their transaction process and how deals can still be closed, even under lockdown.

TRANSACTION AT A GLANCE CLIENT: Addvanze

SECTOR: Materials & Mining

TRANSACTION TYPE: Acquired 100% of Business Operations

BUYER: Kafrit Industries

The pandemic has forced many changes in how M&A transactions are executed, what is the most important change you have witnessed?

Had it not been for the COVID-19 pandemic, I doubt many of us would be as advanced or comfortable in our use of tools and technology such as video conferencing, in our M&A processes as we are today. Circumstances forced us to quickly find alternative solutions to new working conditions, otherwise we probably wouldn’t have advanced so much for another couple of years or so, yet now it’s the norm in every single deal we work on.

I believe there was one new form of technology the IMAP Sweden team had begun using even before the pandemic?

Yes. It is generally quite difficult to source good quality photos of facilities both inside and outside, which are crucial early in the process for info memorandums and management presentations etc. as well as during due diligence. Therefore, about a year or so ago we purchased our own drone. It’s quite easy to fly and by simply connecting it to a mobile, we can take our own high-quality photos and no longer rely on third parties or our client to take photos for us.

In one of your recent materials cross-border deals, I understand your client and the buyer never physically met?

Correct. Our client Addvanze, a leading developer, producer, and marketer of color, and additive masterbatch, is in Sweden and the buyer, Kafrit Industries, a leading producer of masterbatches and compounds for the plastics industry, is based in Israel. Not only did they never meet, but the buyer also never physically saw the facilities before the acquisition and in fact, is due to see them now for the first time, one month after closing the deal.

With the element of trust so crucial in buying and selling a business, how easy was it to gain trust virtually?

Having sold the clients previous company in the same line of business back in 2007, we already had a good relationship with him. Furthermore, IMAP Sweden has a strong reputation in closing industrial transactions. We have an experienced team and understand the market. Our credentials helped to instill confidence in both parties that we would be able to achieve a successful outcome.

From the outset, there was a great deal of flexibility from all sides which was extremely important and once the process started, we held lots of Teams meetings and workshops and we were able to build up a good relationship between all the parties. The entire process took approximately a year, as cross-border transactions generally take a bit longer than regional deals which we can close in 3-6 months. The due diligence was intense and took 4 months, and there was a lot of business talk and technical discussions and understanding how the plant worked, but it was critical in a deal like this.

How did you come to find a buyer for the plant in Israel?

The masterbatch market is large, yet everyone knows each other. For our client, finding the right buyer for his business was paramount as he was looking to ensure the long-term future of the company and its employees. With 40+ years in the business, he also knew which companies may be interested in acquiring Addvanze. On receiving the mandate, we reached out to our IMAP partners and both the German and US teams provided us with several names and helped with initial contact. We also had our long list from our previous transaction and after some research, found and reached out to the Israeli buyer.

What would you say was the key factor to you closing the transaction?

I think what really gave both our client and the buyer the security they were looking for to proceed with the transaction, especially on the part of the buyer who hadn’t physically seen the facilities, was the live virtual tour we organized for them. One of the buyers’ employees from its German subsidiary had spent one day at the facility, but nothing compares to seeing the plant for yourself with your own eyes. The client and I spent about two hours giving a virtual tour of the facilities using Teams on our mobiles.

The majority of the buyers’ senior management were on the call which was taped and later shared with the company chairman and board of directors. We were able to show them everything from the offices and warehouse to the machinery and changing rooms, as well as a live demonstration of the color-matching process. The tour provided the opportunity for open conversation between the parties and was paramount in creating confidence and trust. The buyer was able to ask questions and resolve any doubts and insecurities. From the client’s point of view, he was assured by the buyer’s competence which confirmed that he was indeed the right fit for his business.

What would be your principle takeaway from your transaction experiences over the last year?

We can still do cross-border M&A deals, even though we can’t meet. In fact, my colleague also recently closed a deal with a buyer in Norway, without having previously met the client. I admit to being a bit doubtful at first as building relationships and trust without meeting is difficult, but we made it work. Obviously for regional deals, we try to facilitate meetings between the buyers and sellers and organize site visits, but video conferencing is here to stay.

Teams technology has worked really well for us. It has proven effective, efficient, and flexible, saving us time and money, and helping to streamline our processes. Of course, it goes without saying, but it only works if you have your camera on, otherwise it’s just a normal phone call – you need to be able to see the person and read their expressions and reactions whilst talking.

Read the full article in IMAP's Creating Value magazine here.