The other Merrill: how Datasite’s virtual world is taking over

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Rusty Wiley, Datasite

When Ken and Lorraine Merrill started a typesetting business in 1968 from their house in St Paul, Minnesota, they would have struggled to predict where it might end up. In 2019 the software built by the 750 employees of Merrill Corporation, which last month changed its name to Datasite, helped make 10,000 mergers and acquisitions happen.

The rebrand sees the whole company adopt the name of a platform that has grown to be at the heart of the business: a virtual dataroom, due diligence, connectivity and analysis suite that is used by every one of the top 25 investment banks, as well as thousands of corporates, and which supports a vast array of deals around the world.

It’s a world away from Merrill’s original typesetting business. It did well at that, growing to be one of the largest specialized financial printers in the world. But printing was already on the wane even before Covid-19 emptied offices around the world. Merrill sold the last of its printing assets in 2018. Founder Ken Merrill died in 2019 aged 100.

Datasite had grown too big for its most recent St Paul headquarters. In 2019 it announced it would finally move to the other Twin City, Minneapolis. In March this year it made the switch, but its employees barely made it through the front door before coronavirus exploded into the US consciousness, sending the company’s entire staff home.

Fifty years after Merrill Corporation was born in one living room on one side of the Mississippi, Datasite is beginning life in an empty office on the other – and in 400 living rooms on both.

Crucial cog

Datasite might not be an adviser in the traditional sense, but it’s a pretty crucial cog in the M&A machine. Its deals last year touched nearly every country in the world. Transaction sizes go from about $15 million to the multi-billion megadeals.

Chief executive Rusty Wiley has been with Datasite for six years, after a career at IBM that stretched back to the 1980s. He has presided over a transformation of the company from a conglomerate of various operations into a much more focused client-connection platform.

But even while it was still printing, Datasite had long been at the forefront of changes in its industry. In 2001 it far outstripped competitors in adapting to the new electronic filing format for documentation submitted to the Securities and Exchange Commission.

With the company’s last printing assets sold, Datasite is now firmly a software-as-a-service firm. The company might look different to the business Ken Merrill founded, but documents are documents whether on paper or online and they need just the same organization and security as they did when they were printed.

Wiley knows this as well as anyone and for him the current crisis is serving as proof of the value of what Datasite offers – a secure but collaborative online platform that is more crucial than ever when access to physical locations has been shut down. Most of the company’s staff are now spread across Minneapolis, London and Hong Kong, and all are now working away from the office.

“We had deployed new technology recently that allowed us to have our entire team work remotely, and now with the crisis, this is not optional,” he tells Euromoney. It has made good use of its core product for its own purposes too: in mid-March, the company hurriedly rescheduled a New York City board meeting into a virtual event that used a combination of external technology and the Datasite platform.

Datasite is obviously geared to the M&A cycle: what happens when deals start to dry up?

Global announced M&A stands at $688 billion for the first quarter of 2020, according to Dealogic. Last year it was already over one trillion dollars in the same period. In March there has been $248 billion of announced business, compared with $420 billion last year.

Dealflow is suffering, but it isn’t frozen yet. But Wiley argues that Datasite is about more than deals. It’s also about enabling owners to communicate to the market about the state of their assets, whether to update them on strategic plans or on cash burn. And sometimes, as with Datasite’s own board meeting, it has entirely internal uses.

“It is used for a whole host of stuff, such as internal data rooms and secure collaboration,” says Wiley. “We’ve had 800,000 users in the last four years – it’s become an accepted platform for people.” It helps that it is possible to plug third-party solutions into the platform, such as video-conferencing tools and now, more than ever, communication with interested parties is crucial.

“Every equity investor and debt holder is desperate to find out what is going on,” says Wiley.

Second-half hopes

But back to the deals and back to a world before coronavirus. With financing markets open and buyers awash with cash and options to use it, the year had seemed full of promise.

“As we entered 2020, we expected the first half to be good, as there had been progress on Brexit, people wanted to get deals done ahead of the US elections in the autumn, there was tons of cash around and money was cheap,” says Wiley.

The spread of coronavirus to the most active of the world’s M&A markets has changed that outlook now. “Dealflow remained strong in January and February and even the first week of March,” says Wiley. “It was only after that we started to see a slowdown.”

But he is confident that, provided the world can get back to some version of normality within months, prospects will be strong. Another fillip for financial services is that the US election now looks set to decide between either a pro-business Republican or a moderate Democrat.

“If we can get containment within, say, 60 or 90 days, through treatment and flattening the curve, and if credit markets are in good shape, then I think the back half of the year could be very strong,” says Wiley.

Those are two big ‘ifs’. Even if containment can be achieved in the US and other developed markets, a catastrophic spread of the pandemic in developing countries could still prove difficult for the world to rebound from quickly. And if containment proves impossible in a short timeframe anywhere, the risks of an even deeper and long-lasting recession will be high.

Distressed conditions still give a company like Datasite scope for business – the firm has been involved in pretty much every non-performing loan transaction in Europe, for example. For the moment Wiley says there is little evidence yet of a pipeline of forced sales building, but he is expecting stress to start to show up over the next few weeks – albeit dependent upon what central banks and governments continue to do to support companies.

“There could be an unusual bifurcation in the second half of the year,” he says. “We could see a large number of distressed assets in the market, as well as good companies that were preparing to launch before the crisis.”

However, that all depends on another big factor. In the last two weeks the highest quality names have been able to tap debt markets for funding and banks are proving successful in convincing corporates to take up new loans rather than tap less lucrative revolvers. But acquisition financing, particularly for more stretched credits, will be a different prospect. And there is still much that can happen to shut even the best names out of the markets; and Wiley is well aware of that risk.

“If the credit markets seize up, that’s the one thing that kills deals in our business.”

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