Goldman Sachs says that it’s been using drone technology to give its clients a “bird’s-eye view” of target companies, according to Stephan Feldgoise, the firm’s global co-head of mergers and acquisitions.
Since COVID-19 has stopped nearly all in-person meetings, research, and travel in the due diligence process in M&A, Goldman Sachs says that it’s been forced the employ the use of drones for virtual site visits, as well as teleconferencing tools like Zoom, BlueJeans, Cisco Webex, and Microsoft Teams.
Feldgoise noted that Goldman Sachs has advised on several hundred transactions during the pandemic. The firm did more than 95% of them without any face-to-face interaction, using drone technology instead.
COVID-19 Makes Physical Site Visits Unsafe
The pandemic quickly made the possibility of having in-person visits with groups of bidders impractical and unsafe. Accordingly, Goldman Sachs began to employ commercial-grade drone technology to conduct virtual tours of facilities. These facilities included shipping ports, railroads, chemical factories, warehouses, and big-box retail locations.
“We have been selling asset-based businesses all over the world using drones for site visits and fly-overs,” Feldgoise said to CNBC in a phone interview. “It gives buyers the confidence they need because when you are buying a business, you want to see, touch and feel what you are buying.”
Drones are likely permanent. Feldgoise remarked, “We believe it will change the M&A landscape forever.”
Several Firms Using Drone Technology
Goldman Sachs is just one of several investment firms using the technology. The list includes JPMorgan Chase, which has the world’s largest capital markets business by revenue. That bank has leveraged drone technology in transactions, according to an insider with knowledge of the bank’s processes.
Now, boutique investment banks have started using drone technology. CNBC says that middle-market advisor TKO Miller helped SPI Lighting, a maker of architectural lighting fixtures, sell itself to a competitor in part by creating a two-minute promotional film that started with an aerial view of the 130,000 square foot headquarters then moving across the firm’s factory floor and warehouse.
“We’ve proven the benefits of drone footage,” said Erik Eidem, TKO banker, said in an interview. “The pandemic made drone technology a necessity, but people are very happy about it, they feel they’re getting a better sense of the business early on.”
Remote Deal-Making on the Rebound
This new paradigm of remote deal-making has produced a sustained, torrid rebound in M&A activity. In Q2, American companies devoted their energies to raising billions of dollars in debt and equity markets to stay afloat during the pandemic. They then considered takeovers to reposition themselves for the new reality. In fact, deal announcements jumped 152% in the third quarter to $1.13 trillion, according to Dealogic.
Goldman ranks as the leading advisor by deal count and transaction value. Next is Morgan Stanley, JPMorgan, and Bank of America, according to Dealogic.
Drone Technology Changing the Traditional M&A Process
The change in technology has upset the traditional pace of the M&A process, bankers say. In the past, advisors scaled potential buyers down to perhaps five for management presentations. Now, because of this more efficient process, the bankers are working with twice as many bidders in later stages. The increased number of bidders ups the chances of a successful match.
Experts say that the using drone technology will have a permanent effect on business travel and staffing needs at Wall Street firms after the pandemic ends. In fact, Microsoft co-founder Bill Gates said this month at the New York Times’ Dealbook conference that more than 50% of all business travel probably would be unlikely to come back.
After the pandemic, bankers will still travel to find an advantage in forging relationships with key players. JPMorgan Chase CEO Jamie Dimon commented that for him, there was “no way” he would travel less to see clients and employees.
However, significant components of the deal process that are logistically complex and easier over videoconference will probably remain remote. This is made possible by virtual communication.
Drones began in the military. But they are now are being used widely in applications from package delivery to monitoring great white sharks. A drone is an unmanned aircraft, more formally known as unmanned aerial vehicles (UAVs) or unmanned aircraft systems (UASes). A drone is a “flying robot” that can be flown by remote control or autonomously through software-controlled flight plans in their embedded systems that work with in concert onboard sensors and GPS.
The cost of a commercial drone starts at $1,000. However, bankers typically hire professional videographers who charge $10,000 and up for slickly produced and edited film tours.