Despite ongoing economic uncertainty amidst a global pandemic, many dealmakers remain optimistic about the outlook for the year ahead as they increasingly pursue alternative merger and acquisition (M&A) methods to navigate the crisis and pursue new disruptive business growth strategies. According to Deloitte’s new “Future of M&A Trends Survey” of 1,000 U.S. corporate M&A executives and private equity firm professionals, more than 6 in 10 survey respondents (61%) expect U.S. M&A activity to return to pre-COVID-19 levels within the next 12 months.

Soon after the World Health Organization declared COVID-19 a pandemic on March 11, deal activity in the U.S. plunged — most notably during April and May. Responding M&A executives say they tentatively paused (92%) or abandoned (78%) at least one transaction as a result of the pandemic outbreak. However, since March 2020, possibly aiming to take advantage of pandemic-driven business disruptions, 60% say their organizations have been more focused on pursuing new deals.

The majority of M&A professionals surveyed also (87%) report that their organizations were able to effectively manage a deal in a purely virtual environment, so much so that more than half (55%) anticipate that virtual dealmaking will be the preferred platform even after the pandemic is over.

However, virtual dealmaking does not remain without its own challenges. Fifty-one percent noted that cybersecurity threats are their organizations’ biggest concern around executing deals virtually. 

“When it comes to cyber in an M&A world — it’s important to develop cyber threat profiles of prospective targets and portfolio companies to determine the risks each present,” said Deborah Golden, Deloitte Risk & Financial Advisory, cyber and strategic risk leader, Deloitte & Touche LLP.  “CISOs understand how a data breach can negatively impact the valuation and the underlying deal structure itself. Leaving cyber out of that risk picture may lead to not only brand and reputational risk, but also significant and unaccounted remediation costs.” 

Other virtual dealmaking concerns included the ability to forge relationships with management teams (40%) and extended regulatory approvals (39%). When it comes to effectively managing the integration phase in a virtual environment, technology integration (16%) and legal entity alignment or simplification (16%) are surveyed M&A executives’ largest and most prevalent hurdles.

“It may be too early to assess the long-term implications of virtual dealmaking as many of the deals currently in progress now are resulting from management relationships that were formed pre-COVID. We also expect integration in a virtual setting will become much more complex a few months from now,” said Russell Thomson, Deloitte’s U.S. merger and acquisition services practice leader. “Culture and compatibility issues should be given greater attention on the diligence side, as they pose major downstream integration implications.”