Due Diligence By Drone

Meet and greets in the M&A process have been replaced by Zoom calls and drone surveillance technology.

Thanks to videoconferencing tools from Zoom, Microsoft Teams, Webex, Skype and Slack, the onerous due diligence process of reviewing books and assets, negotiating with multiple bankers and lawyers and visiting factories can be done remotely. More than $1 trillion in deals have been concluded in the third quarter of this year, according to Dealogic, a 48% year-over-year increase. 

In March, a little-known Massachusetts biotech company, Arrakis Therapeutics, was negotiating a $190 million investment with Swiss giant Roche. Roche’s team was supposed to jump in a plane and spend three days in Massachusetts reviewing Arrakis’ books. But the outbreak of the pandemic prevented travel, so they negotiated via Zoom before signing a partnership agreement—all in just a day and a half.

“Instead of meeting in a sterile law firm conference room, we interacted in our kitchens and living rooms,” says Michael Gilman, Arrakis Therapeutics’ CEO. “Teleconferencing gives a sense of intimacy and allows for empathy. You want to help the other side solve their problems.” Gilman says he was surprised at the efficiency of the process. 

Consulting firm Alvarez & Marsal offers tips about due diligence best practices in the era of Covid-19: frequent status calls and access to virtual data rooms to analyze numbers remotely. Site visits are replaced by drone videos. That’s how investment bank TKO Miller helped SPI Lighting sell itself to competitor Bukas Lighting Group. A two-minute aerial view of its headquarters sealed the deal.

When Danish bioscience company Chr. Hansen acquired American UAS Laboratories in July, it still sent two people to confirm the address of the plant. Everything else was done virtually.