Gunderson Dettmer brings clarity to uncertain market

Even if social distancing means they can't close matters with a handshake, Gunderson Dettmer's mergers and acquisitions practice is helping clients get deals done.

The firm's focus on commercial matters for venture-backed public technology and life science companies and investors hasn't changed much with the onset of the COVID-19 crisis. But the world and the particular dealmaking environment that allows the M&A market to thrive certainly have, said Gunderson Dettmer Stough Villeneuve Franklin & Hachigian LLP partner Andrew Luh.

"There's a general nervousness about the amount of cash runway and its impact on M&A for prospective buyers," said Luh, the Silicon Valley-based chairman of the firm's mergers and acquisitions practice.

Luh said the bulk of Gunderson's M&A practice is on the sell-side -- the companies making technologies and software in industries like telecommunications and life sciences that venture capitalists invest in. Among that client list, Luh said, there are currently about 2,500 venture-backed start-ups in what he called "growth mode."

"They're clients that venture capital would otherwise heavily be investing in. But that growth is contingent on them being able to raise another round," Luh said. "With prospective buyers, we have seen that they're more reluctant to enter into auctions."

One of the most immediate causes of confusion and concern among clients is the rapidly shifting regulatory regimes the industry's operating under, Luh said. Allaying client concerns in the first few days and weeks of the pandemic was a primary goal for Gunderson Dettmer's M&A team as Luh and others worked to keep clients informed through news alerts and email updates.

While uncertain economic prospects have made some potential venture backers hesitant, the overall volume of deals in the market hasn't seen much impact, said firm partner John Olson.

John Olson

"While valuations may be experiencing pressure -- generally speaking -- downward, there are certainly clients who are well-positioned to thrive in the coming environment, and for those companies, they're seeing an opposite movement," Olson said.

But for any deal where the ink's not yet dried, he said, there's bound to be an effect.

"If they've not signed the deal, we're doing what we can to make sure the deals actually will close," Olson said. "There are plenty of deals that are going to be put on hold -- no question about that. There's plenty of deals that are going to be re-cut," Olson said.

In the meantime, he said, the firm's mergers and acquisitions practice is helping its clients move forward with the deals that can move forward while doing their best to safeguard future growth opportunities.

"Some of the deals that are proceeding, we're looking at from an M&A perspective that we might have not looked at were it not for this crisis," Olson said.

For example, a venture-backed company who might have otherwise been looking for equity financing rather than an M&A exit "may now be looking at a fundraising environment that is not as company-friendly as it used to be," Olson said.

"They might be saying to themselves, 'Hey, I wouldn't have considered selling my company three months ago at the valuation of a buyer who was willing to pay, but now I am,'" Olson said.

At least in the short term, Olson said the market remains very busy for their M&A clients. But he said part of the firm's job is helping them adjust to dealmaking in the pandemic crisis for as long as it lasts.

"In the early stages of a deal, it's very important for the buyer to be able to have a face-to-face meeting with someone who they are essentially hiring to do a business deal for them. It's hard to do that in absence of a face-to-face," Olson said.

That's a gap that technology has helped to bridge, Olson said, with video conferences helping fill the void created by the loss of the personal touch. If the pandemic drags on, though, that human element may end up being much more of an issue.

"Something that's really important to keep in mind is that our clients are people, and while they're dealing with this, M&A is already very taxing on attention, energy and focus," Olson said. "Many are managers themselves; they have day jobs. Managing companies where there are very intense operational challenges, where there's negotiations going on, they're making deals. It's incredibly intense."

One relief, Luh said, is that each day tends to bring more clarity than less. Less uncertainty means less market discomfort.

"At first, we had no idea how this was going to persist," Luh said. "I think people are going to be more happy with some ground rules."