On the 11th of March 2020 the world was greeted with the news that the novel coronavirus (COVID-19) outbreak had been declared a global pandemic by the World Health Organization (WHO). What would happen next was anyone’s guess as business came to a halt, international travel shut down, mobility became restricted and international financial centers (IFCs) and their service providers began searching for alternative ways of doing business during a period of unparalleled uncertainty. Some professionals had experience in weathering more limited pandemics, such as SARS, and/or recessions that had occurred in the past. Amongst them were the experienced strategic and f inancial investors who navigated through the 1987 stock market crash and the 2008 global financial crisis. When COVID-19 (the Pandemic) hit, those with long tenures in the industry may have had the advantage of experience but only to a limited extent. This Pandemic was unique, created a real sense of panic, and there was certainly no playbook for it. Crises generally create volatility, market interruption or a lack of supply and demand of transactional capacity. The Pandemic caused volatility and market disruption but didn’t drastically diminish a supply of capital or demand for transactional activity in international business. This article will explore how the Pandemic affected international business through the lens of financing, M&A and technology in the wake of the Pandemic.
FINANCING IN THE WAKE OF THE PANDEMIC
Due to the abnormal impact on gross incomes and profits, the Pandemic significantly impaired the visibility that lenders once had into a borrower’s capacity and willingness to repay a loan. Pre-Pandemic finance providers were better able to determine a borrower’s likely ability to repay and the probability of default, by considering credit and payment histories, income, assets or nonf inancial information such as length of banking relationship and the purpose of the loan. In addition, it limited lenders’ options for recourse in the increasingly likely event of a default. This is potentially a long-term development. The protracted effects of the Pandemic on the economy and the financial services sector may materially and negatively impact the appetite of lenders to provide ongoing facilities. This is more pronounced in the age of banks continued de-risking. Notably, mergers and acquisitions activity carried on through the Pandemic relatively unscathed as opportunistic buyers with extra cash on hand met head to head with eager sellers. Other buyers embraced the opportunities to consider joint ventures or partnerships to expand their business and generate new streams of revenue. Examples include Anglo-Swedish drug maker AstraZeneca’s (AZN.L) $39 billion acquisition of U.S.-based Alexion (ALXN.O) in July 2021 which allowed AstraZeneca to enhance its scientific presence and S&P Global Inc.’s (SPGI) $44 billion purchase of IHS Markit Ltd (INFO) in early 2022 combining two of the largest financial data providers.
TECHNOLOGY
Technology had already changed pre-Pandemic, but the Pandemic further accelerated and solidified the shift toward an almost total reliance on technology with a McKinsey & Company report estimating the acceleration of technology by a measure of three to four years. The British Virgin Islands (BVI) has seen legislation to technologize both its governmental and international finance sectors with the introduction of the Electronic Filing Act 2021, Electronic Transactions Act 2021 and the Electronic Transfer of Funds Act 2021 bringing with them the provision of e-government services, electronic filing, creation and retention of official documents, acceptance of electronic signatures and electronic transactions and dealing with virtual assets and data protection. The Electronic Transfer of Funds Act 2021 regulates the transfer of money through electronic means and creates offenses for criminal activity orchestrated through transfer of money by electronic means e.g. fraudulent use of bank cards. One would understand why this was necessary as criminals exploited the Pandemic with a rise in scams and attacks against online victims.
The Electronic Transactions Act, 2021 (ETA) states that information shall not be denied legal effect, validity or enforceability on the sole ground that:
(a) it is in the form of an electronic record; or
(b) it is not contained in the electronic record purporting to give rise to such legal effect, but it is merely referred to in that electronic record.”
The ETA also provides that
• unless otherwise agreed by the parties, an offer or the acceptance of an offer may, in relation to the formation of a contract, be recorded by electronic means.
• if the relevant documents meet the requirements of a binding contract under BVI law, the use of electronic records does not affect their legal effect, validity or enforceability as a contract.
• the requirement for a signature (or seal) on a document can be satisfied by means of an electronic signature, provided that the electronic signature.
Electronic record is defined under the ETA as information generated, sent, received or stored by electronic means including electronic data interchange, electronic mail, telegram, telex or telecopy.
Deeds however do not form part of the scope of the ETA and as such the (i) the creation, execution or revocation of a will or testamentary instruments (ii) the conveyance of real property or the transfer of an interest in real property; and (iii) any other thing required to be done by deed still requires wet ink signature. The acceleration of technology also saw the introduction of the Financial Services (Regulatory Sandbox) Regulations, 2020 (FSR), the Data Protection Act 2021 and the Virtual Asset Service Providers Act 2022 (VASP). Under the FSR the BVI Financial Services Commission (FSC) announced that their regulatory sandbox was open and accepting applications. The aim of the regulatory sandbox is to ensure that regulation keeps up with the changes in technology and to test innovative financial services, while protecting market participants.
Innovative FinTech has aptly been defined in the FSR as the development or implementation of a new system, mechanism, idea, method, or other arrangement through the use of technology to create, enhance or promote a product or service with respect to the conduct or provision of a financial services business. The FSR will apply to BVI business companies, foreign companies, limited partnerships, micro business companies, existing licensees or any other person that the FSC has otherwise approved to participate in a regulatory sandbox. An important point is that the provisions of the other regulatory legislation will not apply to a sandbox participant in so far as the sandbox participant is using innovative FinTech to test a product or service within the regulatory sandbox. VASP is the latest BVI legislative development designed to fulfil the BVI’s ambition to become a global technology hub. It aims to promote the use of new technology and innovative enterprise in the BVI whilst complying with international standards set by the Financial Action Task Force (FATF). On a more global scale international business has also become more reliant on technology and less reliant on physical financial centers as places for doing business, this may be due to the fact that during the Pandemic most of these centers were forced to shut down but international business kept operating and finding innovative ways to conduct business. On the client end of the spectrum the Pandemic has fast-tracked changes in client behavior with clients demanding digitalized systems in almost every aspect of business. Governments are following suit digitalizing their processes. Whilst most businesses historically sought temporary immediate short-term technology solutions pre-Pandemic, they are now focusing heavily and on a long-term basis on investing in technology and digital tools viewing it as indispensable to their growth and survival. There had been widespread use of virtual data rooms, video conferencing technology and collaborative software prePandemic. However, the Pandemic made these types of resources an absolute necessity and they have now become a widely accepted alternative to traditional face-to-face meetings in the financial services industry. Zoom, Microsoft Teams and Google Meet have fundamentally altered how we communicate with one another. Technology innovation also brings with it a push towards a hybrid, and in some cases a fully, remote working system. A majority of companies and firms are now creating new human-centric models for a hybrid working environment while promoting healthier, more collaborative work spaces with emphasis on staff wellbeing.
This is not a ‘nice to have’, it is fundamental to the choice of employer or partner that prospective consultants, officers and employees will make. This once in a multi-generational event, the Pandemic, has forever and indelibly changed our lives. We live, work, meet and interact, travel in a very different way to what we did three years ago. It has fast-tracked technology and coincided with the boom of digital assets and more generally transformed the way international business is conducted. Financial institutions appetite for risk and their lending models may forever be changed but more than that, the Pandemic has made us re-evaluate how we live and operate with greater emphasis on well-being, mental health and the environment. In that sense, the global Covid pandemic may turn out to be a blessing.