One thing to start: This Saturday, DD launches a new edition of the newsletter called Scoreboard in collaboration with the FT’s sports editor Murad Ahmed. Scoreboard will tackle the business of sport just as DD does corporate finance, looking at how billionaires and other investors are making huge bets in sports ventures. We hope you’ll stay with us on this journey, but if you prefer to opt out of Scoreboard click here.
Welcome to the Due Diligence briefing from the Financial Times. Want to receive DD in your inbox daily? Sign up here. We love to hear from readers: [email protected]
Due diligence goes digital
In the pre-coronavirus era, the due diligence process involved a lot of travelling and in-person meetings that allowed investors or buyers to get a feel for where their money was going.
This has, of course, been made near-impossible by the global shutdown. Here’s a look at how some venture capitalist groups are getting creative.
Stephan Dolezalekthe executive director of the agritech investment company Wheatsheafwas doing his due diligence on a prospective start-up investment via a video feed from a camera mounted on a hard hat.
For a deal that would’ve required him to travel to the company’s location, do a tour, meet with executives and head back home, he got a one hour virtual tour of its facility.
In Beijing, Philip Beckan angel investor and fundraiser, has had similar experiences. Time spent doing due diligence, he thinks, has sped up 25 per cent.
Time-saving and reduced travel costs are clearly a benefit. It’s certainly better for the planet, as well. Plus, businesses that aren’t located in big financial hubs get more of a fair chance because they can do things virtually.
Rob Leclerc of AgFunderwhich is an online funding platform, went so far as to call Covid-19 “the best thing in the long run for entrepreneurs and start-ups”. His point is: think of all the start-ups you could fund if you looked outside the 90 mile radius of Silicon Valley.
While that may be true, the big picture shows that things aren’t so clear cut.
Beck explains that a faster due diligence process also means faster rejections. Some companies are having a hard time persuading investors in the current climate.
Nalin Patelan analyst at data provider PitchBooksaid he expected dealmaking to slow for the rest of the year. VC groups are focusing on investing in their existing portfolio companies rather than searching for new start-ups.
Some VCs still like face-to-face meetings and have adapted in other ways. They are taking more socially distant walks in parks and open locations, while others are slowly going back to office meetings while wearing face masks and using plenty of hand sanitiser.
This does make proximity key. But it also helps to build trust when people can meet each other in person rather than virtually. Perhaps the answer is somewhere in between.
Read the full story here.
Mining M&A goes strong
Advisers and lawyers looking for the bright spot in M&A will find it underground.
While most dealmakers lie dormant — or try to get out of deals they agreed before coronavirus struck — there has been a flurry of mining deals in an industry that is largely unscathed by the pandemic.
The deals are small and they are led by gold producers. Data from Refinitiv show that there have been 292 deals worth a total of $11.8bn since March 23. The flight to gold as a safe haven has helped give the industry a boost.
Some notable deals: Canada’s Endeavour Mining agreed to combine with Semafo in a $690m deal to create the largest gold miner in west Africa. Anil Agarwalthe Indian metals tycoon, launched a $2bn-plus bid to take control of natural resources group Vedantaand Colorado-based Alacer Gold announced plans to merge with Canadian rival SSR Mining in a $1.7bn deal.
The dealmaking spree in mining has at least shown that it’s possible to execute deals in the middle of a global pandemic, if you’re willing to get creative.
As well as using online data rooms and going through detailed technical discussions by video conference, Richard Horrocks-Taylorwho runs the metals and mining team at Standard Chartered Banksaid they have been helping clients with due diligence using drone technology and GoPros.
Consolidation has been one of the key trends in the gold mining industry since Barrick Gold announced plans to buy Randgold Resources for $6bn in September 2018. Mark BristowBarrick’s chief executive, told the FT’s Neil Hume and Henry Sanderson that “there are definitely opportunities for M&A and consolidation”. Read the full story here.
Food for thought: JPMorgan to face charges it favoured Apollo bid for grocer
Just what kind of favour did the $116m in fees that Apollo Global Management pay to JPMorgan Chase between 2013 and 2015 get the private equity group, if anything at all?
A Delaware court is interested in finding out.
In early 2016, Apollo clinched a deal to buy grocery chain The Fresh Market for just over $1bn. JPMorgan had run the auction for the company.
The grocers’ shareholders had sued over the deal, eventually making allegations about a conspiracy between the company’s founder, Ray Berrywho would partner in the leveraged buyout, and Apollo to take TFM private at an unfairly low price.
The lawsuit included claims against the company’s advisers, JPMorgan and law firm Cravath, Swaine & Moorefor allegedly steering the deal towards Apollo.
After years of legal wrangling, a decision last December and then on Monday have brought the case into sharper focus. Charges against Apollo, Cravath and certain board members have been dismissed. But charges remain in place against Berry, certain TFM executives and JPMorgan, who are set to eventually go to trial.
JPMorgan is accused of tipping off Apollo of deal developments during the auction to help them make the winning bid and then not being forthright about it to its client.
Importantly, these are just inferences for now and JPMorgan, which maintains its innocence, will have the chance to make its own case at trial. Still, the emails and documents produced did raise enough questions to convince the court to allow the case to move forward.
Large Wall Street banks such as JPMorgan make enormous fees year after year from big PE groups. In response, boutique banks have made a nice living by pointing out the opportunity for potential conflicts of interests.
The Fresh Market case may soon become their latest talking point.
Tesco’s chief financial officer Alan Stewart will step down next April, just over six months after chief executive Dave Lewis departs the UK grocery retailer. More here.
KPMG has appointed Massimiliano Messina as its new head of turnaround. He joins from PwC where he led the firm’s UK chief risk officer and turnaround practice, having also previously worked as a senior adviser for AlixPartners in Paris.
Meli goes it alone Not many investment bankers who get a $10m pay cheque as a junior trader will couch-surf in their offices but Ali Meli defies Wall Street stereotypes. The former Goldman Sachs partner is now raising money to start his own credit fund. (BBG)
Lesson learnt When coronavirus struck markets at the beginning of March, private equity group KKR didn’t waste any time. It has struck the most deals out of any buyout group, deploying $12.7bn. (BBG)
Finding the upside We have talked a lot about companies that are reeling from the sharp reversal in global markets so FT reporters have made a list of six businesses that have done well in the coronavirus crisis. (FT)
GIP and Brookfield close in on $15bn Abu Dhabi gas pipeline deal (FT)
Warner Music delays IPO pricing on US protest fallout (FT)
Elliott closes in on victory in Bank of East Asia control battle (FT) + (Lex)
Neiman Marcus director lambasted by bankruptcy judge (FT)
Amazon secures record low borrowing costs (FT)
RenaissanceRe to raise $900m in biggest equity issue of crisis (FT)
South Korean shipbuilder shares jump on $20bn Qatar deal (FT)
Coronavirus drives overhaul of British boardrooms (FT)
Sexist and racist chats spike among home-bound traders (FN)
We’re offering a free 30-day trial to Coronavirus Business Updateour level-headed briefing on how the epidemic is affecting the markets, global business, workplaces and daily lives. It also includes access to FT.com. Please spread the word by forwarding this newsletter to friends and colleagues who you think would find it valuable. They can sign up here.
Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt and Mark Vandevelde in New York, Miles Kruppa in San Francisco and Don Weinland in Beijing. Please send feedback to [email protected]