Tinder for Mergers
It has been more than half a year since Covid-19 was declared a pandemic. By now, it is something we all refer to as the ‘new normal’ and is a part of all our daily lives. Another thing which even before Covid-19 was an integral part of our lives and after this pandemic will influence it further is, ‘digitalization’.
From getting classrooms on MS-teams or Zoom today, to bringing matchmaking for people on digital forums for quite many years now, are merely two drops from the ocean of services which we have digitalized since the advent of internet.
IT’S A MATCH! Heard this before? No, I am not talking about the millennial dating app Tinder, I am talking about Tinder for mergers. Yes, you heard it right. Tinder for mergers! With some inspiration from social-media tools, where with a right swipe you could meet someone new, a right swipe now will help firms find their ideal match.
Before understanding how and who is enabling this change, let us understand in a brief what M&A is.
A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another.
The reason why it is done, is to have synergies. It simply means that the effect of two as one, must be greater than the two as individuals. Mathematically put, say for example in terms of Profit after tax (PAT) for a firm,
PAT of A+PAT of B<PAT of (A+B).
As the world-renowned scientist of the 19th century Albert Einstein quoted, “Necessity is the mother of all inventions”, so was the case for inventing ‘Gemini’, the app invented by Goldman Sachs to facilitate and to help clients of investment bankers with mergers and acquisitions.
One may call it ‘Deal Tinder’ or a ‘Banker Bumble ’or simply explain it as an app for carrying out M&A in times where social distancing is the key to safety and air travel remains a taboo.
How it works & what it has to offer?
The above image clearly depicts how the quantum of M&A in 2020 is way below its 15-year average which stands at a mere $1.1 trillion. But there still is demand which is evident from flurry of activity such as the Microsoft Corp. which confirmed that it’s in talks to buy the U.S. side of TikTok as the Chinese-owned social-media sensation comes under scrutiny by the Trump administration. This shows that not even the coronavirus can stifle M&A demand for long and that the pandemic hasn’t altered the reasons for pursuing transactions. The vision for inorganic growth is prevailing even in the Covid-19 era.
The Gemini works like this; the app breaks down how different divisions of companies performance relative to peers, showing how they can grow through mergers and partnerships. It also details which ones look ripe for disposal.
The app relies on a formula that compares revenue growth, profit margin and other metrics as a percentage of sales. It compares that across a wide peer set to provide a score at the individual segment level that can be used to assess relative performance.
This may help CEOs spot vulnerabilities and merger or spinoff (a situation where a particular business segment from a conglomerate is separated to create a new entity) opportunity before activist investors come knocking.
Are there any worries?
One thing you may worry about is culture. Are you going to have the right cultural fit with people you didn’t spend a lot of face-to-face time with? The is no obvious answer, you may or may not. Even if it is not in the affirmative, people in the industry will get used to it as time progresses. The reason is simple, “The show must go on”.
The technology also raises an obvious question -- does it have the potential to ultimately displace the traditional role of investment banker as matchmaker? David Dubner, Goldman’s global head of M&A structuring, said the firm isn’t concerned.
“We have a long-term view that technology and big data are going to be core aspects of the M&A business,” Dubner added. The reason behind the outright comment, seems a little obvious as the firm would not want create an app which will lead to cannibalization. The comment also reflects that the company must have covered this base in the development of the app. It surely wants to bring ease to process but by making sure they remain in the fore front.
In the end, one can say that the app would be for the betterment of the M&A industry. It will save a lot of time ,there won’t be any delay and meeting would be easier to schedule.
If a right swipe can help you meet the right person, then why not companies?