In the wake of FTV’s £78m investment into Bought By Many, Stash’s $112m funding round, and our own work on the £60m Tandem Bank capitalization, we’ve had the question “Why on earth are deals still being done during COVID?” asked recently by prospects. Here are the positive patterns we are seeing as to why companies are attracting capital and strategic interest during this uncertainty:

A lot more of the interest is strategic – There is a compelling strategic objective for a lot of ongoing deals. This is far from opportunistic ‘bottom-fishing.’ Large companies are also reacting in real time, and in a number of cases this exposes holes in their offerings. Also, many corporates were tracking growth companies for some time, and both sides of the table find the uncertainty increasing their mutual interest, not reducing it. Added to this, we will soon begin to see mergers of private companies, who find value in greater scale and breadth. It’s interesting to note Revolut is this week out looking to acquire, as one example.

Growth companies already recognize valuations are lower, but have not cratered – Being ‘realistic’ is often a euphemism for accepting a low price. But valuations for many quality companies have only reset back to 2016-17 levels, which in historical terms was still very attractive. Also, many public technology companies, particularly SaaS businesses, have only declined in value some 10-20%, not 50%+. In many cases we are finding realistic equals 10-25% less than the peak, which is a price range that works for both buyers and sellers.

More sectors than you think are mildly affected, or even benefit – Many marketplace businesses are increasing volumes, the shift to online has accelerated. Certainly distance-businesses (collaboration, learning, medicine, wellbeing, entertainment) are all beneficiaries of COVID. But there are many more sectors than you would think that can benefit. For example, savings apps are seeing strong demand, FTV invested in a pet insurance business, the self-driving vehicle sector is seeing a number of large rounds and acquisitions, and digital logistics companies are showing strong resilience. We are surprised at the number of tech sectors that are mildly, to positively, affected by the downturn.

There is unprecedented amounts of private capital today – I’ve written before that nearly $1 trillion of growth capital has been raised the last 4 years, much of it yet to be invested. When investors find an ‘uncertainty-proof’ business showing resilience in real time, we see their interest increase significantly. It may take longer to transact, but the interest is real even as the world continues to worry.

Last but not least, the cost of money is zero – A strategic with a cash balance today is earning nothing on it. That cash invested in a successful growth company, able to eventually generate tech-driven 20-40% EBITDA margins, is a far more compelling proposition than wasting it in the bank.

The downturn we are seeing is ‘similar but different’ to ’08 and ’01. The differences are what are driving continued deal interest, even in the current environment.

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