The coronavirus crisis has seen a spike in demand for collaboration tools, raised some interesting challenges for platforms - and could reshape deal flows when the lockdown ends
Many tech businesses will emerge from COVID-19 in a stronger position than before the crisis. The enforcement of lockdown measures means that most of us are consuming technology from our homes like never before, and we’re developing skills and working practices that I suspect will stick with us even after the pandemic has passed. Tech companies – including the biggest players - are exceptionally nimble and they’ve seized the opportunities that the past few months have created. They have also been instrumental in enabling some pockets of business to continue, which is vitally important for economies worldwide.
Tech could play a significant role in our ‘exit strategies’ from the pandemic. Some of the major players are joining forces to create ‘contact tracing’ systems designed to help individuals work out if they’ve been exposed to another person with COVID-19. However, the data privacy considerations are complex, with some governments and health authorities wanting to collect data in a way that raises surveillance concerns.
It’s clear there’s still funding available for emerging tech companies despite the economic slowdown. However, directors of businesses issuing equity in a ‘down’ market, where stock valuations are depressed, need to understand the dynamics of these types of transactions, the risks they present and the different questions they need to answer. My fellow partner Ethan Klingsberg has summarised some of the key considerations in this blog post.
There are some segments that are harder hit, including those for whom live sports content is key such as distributors and rights owners. These players have a complex web of contractual arrangements, and need to understand their rights and obligations so they can navigate a way through the uncertainty of the coming months with their partners. Preserving liquidity, which is an issue for every business affected by COVID-19, is vital for when live sports start up again. The online gaming industry is similarly impacted by the sporting shutdown but there is some indication that people have shifted to engage with different online betting products from their homes during lockdown.
The crisis has presented a number of challenges for some platform businesses, particularly those directly affected by the restrictions on travel. These companies have cleverly created very active marketplaces for us as consumers to browse, select and reserve flights, hire cars, find places to stay, book restaurants and so on. Lockdown has left suppliers, consumers and the platforms themselves all trying to manage their way through unavoidable cancellations, reduced supply and a lack of custom while also trying to protect liquidity and jobs. As is often the case in times of stress, consumer bodies and regulators receive myriad queries and step up their focus on how the various players who make up these market places are operating.
The shifting antitrust landscape has been one of the most dynamic aspects of COVID-19. We’ve been engaging with antitrust authorities who have shown willingness to relax some of their rules around industry collaboration and state aid in order to preserve the supply of essential equipment and services during the crisis. Further developments in this area are possible as network providers seek to ensure the resilience of communications networks and the continuation of new technological rollouts.
The post-COVID M&A landscape will be an area to watch. I would expect some consolidation of smaller platforms for example, and there could be greater interest in 5G assets given the demand for network connectivity as remote working and social video calling becomes more familiar through social distancing measures. Foreign investment restrictions could also get tougher as the geopolitical consequences of the crisis begin to crystallise. We’ve already seen governments step in to protect weakened domestic businesses from foreign acquirers, and this is against a backdrop that was already in flux. Recent reforms of the US screening regime for example have seen the Committee on Foreign Investment in the United States (CFIUS) given sweeping new powers to review non-passive investments of nearly any size and value in so-called TID US business (critical technologies, critical infrastructure and sensitive personal data). Similarly, EU Digital Commissioner Vestager has recently commented that EU states should consider taking stakes in companies that are vulnerable to foreign takeovers as a result of the pandemic. Post-COVID, we could see governments rethink the impact of disease on national security, which in turn could lead to closer scrutiny of potentially sensitive deals. Aimen Mir, a partner in our Washington DC office and former senior CFIUS official, talked through some of these issues in a recent interview with Bloomberg.
Natasha Good is co-head of Freshfields’ technology, media and telecoms group