I was recently asked what the impact of Covid-19 and the current situation might be on tech firms? The question was "Do you think that more companies in the tech space will look for financing options or even selling?"
The answer is that I believe that both scenarios are likely. Some will require financing others will NEED to sell, some will WANT to sell and some will be BOUGHT. What I mean by “bought” is that without sellers needing to look for a buyer and without even having the desire to sell, many will be proactively approached with a quite compelling offer.
As a descriptive the word “tech” encompasses a broad category of types of company. However if we look specifically at “tech” within the context of “online” businesses the companies that immediately come to mind would clearly include the big tech giants of our era such as Google, Facebook, Amazon and of course Apple.
Whilst there has been growing criticism in recent years of these groups, primarily due to their pre-eminent and unassailable market positions, whereby concerned commentators referencing their aggressive hedging against potential competitors either by quickly acquiring likely candidates as they rise, or even if we accept the comments by Rana Foroohars’ in her best-selling book “Don’t Be Evil - The Case Against Big Tech", adopting blocking tactics to limit the reach and development of new tech companies that aim to compete, the fact is that the current environment will only serve to make them stronger as the world increasingly looks more to the online community to fulfil needs, whether those needs are social, or commercial.
Of course, the big four aren't for sale! However the fact remains, that within the context of the current health crisis it is clear that ecommerce companies such as Amazon and the platforms that support them will benefit greatly, as they provide much needed support to the buying public during these difficult times and beyond, even if they suffer some logistical constraints due to a reduced freedom of movement. It simply means that their growth, and the parallel growth that will be attributed to many other ecommerce businesses as digital engagement increases, will make ecommerce companies more attractive to potential acquirers or funders as and when we come out of the current disruption.
These acquirers or funders will not only be Private Equity and Venture Capital firms. We will also see that the damaging impact on physical stores where footfall has been reduced to almost zero during this crisis, will create the impetus for those that are more familiar with the 'high street' concept, to shore up their own online businesses even further through strategic acquisitions in order to be less reliant on “presential” (in-person) consumer buying.
At BCMS Switzerland for example, we have seen several companies with both a “presential” model of business alongside “online” services note that within their B2B model, and within the real-time crisis, clients that had previously resisted full adoption of their “online” capabilities, have now shifted to digital services because of the crisis. It’s likely that as we come out of the crisis that one client in particular, who previously had 20% of his company's customers working with his online services, compared to 80% presential, will see a medium and long-term swing from presential, in favour of online. His customers will probably stay with this new model, primarily because their previous objections or doubts about receiving services digitally, will dissipate due to the fact that they are now receiving a “forced” education about the efficacy of digitally delivered services. The take up of digital delivery systems will therefore accelerate, thereby changing the way we work even more.
Private Equity firms and VC’s will be monitoring the effect of coronavirus on consumer habits and as more people shift to online, we should see an increase in acquisitions as well as in the availability of funds for developing tech companies. This will include B2B and B2C, frontline consumer facing businesses as well as business-to-business providers.
This in turn may assist globally in reducing somewhat, the monopoly positions attributed to the big 4, Google, Facebook, Amazon and Apple. It will create a path for other small and mid-market ecommerce players as the cash pours into the companies do become available for sale and who as a result of increasing consumer demand will subsequently need to scale up.
BCMS Switzerland is working with a number of ecommerce companies in preparing them for funding or acquisition. Please don't hesitate to reach out to our team if you have an interest in acquiring in this sector.
Simon Gregory CEO BCMS Switzerland
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