Blockchain: extending the lifeline of companies
At the end of 2019, total annual M&A volume had exceeded USD 3 trillion for the sixth year in a row, with analysts predicting further growth in 2020.
The coronavirus pandemic has since cast huge uncertainty on this prediction, as it takes an unprecedented toll on global financial markets. But for companies that turn to consolidation in order to survive a period of turbulence, what role can blockchain technology play in making the process as inexpensive and efficient as possible?
A classic by-product of tough times is consolidation in markets. In a bear-ish market, companies often seek to merge or be acquired by another company in order to enable them to continue to operate. While this may seem like an opportunistic play by the acquiring company, it is often a matter of survival for the firm being acquired.
Government-enforced lockdowns in response to the global coronavirus pandemic have currently forced businesses in virtually every sector and every country to press pause on their operations, or radically change their way of working.
Financial markets are spiralling, and the future for the economy is uncertain. Against this backdrop, it is highly likely some sectors will see a spike in M&A activity in the coming months as firms look for any alternative to ceasing operations and laying off staff.
It goes without saying that a firm that finds itself in such a position will typically be strapped for resources and will be looking to complete the M&A process as quickly, cost-effectively and efficiently as possible.
Unfortunately, to say mergers and acquisitions are difficult and costly is a huge understatement. One of the reasons for this difficulty is the complex combination of legacy technology systems used throughout the process.
Until the acquisition is truly complete, there is a phase where the two companies need to consolidate data across multiple financial and non-financial statements such as balance sheets, P&L statements, asset registers, shareholding patterns, inventory details and more. This leads to a lot of discrepancies and reconciliations, holding up the process and requiring a vast amount of internal and external resources, which all come with a price tag.
The lifecycle of an M&A deal usually involves multiple parties such as lawyers, external M&A advisors, auditors and tax consultants, each with their own disparate manual processes. Companies are often sceptical of M&A because of the time and cost involved without any certainty of return on investment, especially in the current challenging economic environment. Blockchain technology can ease – and in many cases, remove – these concerns.
Times of crisis often fast-track innovations in technology that can better equip us to handle similar events in the future. Blockchain is one such technology. We face a period of unprecedented uncertainty and hardship as a result of the pandemic, and a conversation about the benefits of blockchain and M&A can feel understandably insignificant. But it is important every industry plays its role in ensuring we as a society are better equipped to handle a crisis of this scale in the future.
Many of the inefficiencies in the M&A process are centred around the issue of establishing trust. Intermediaries such as lawyers and brokers are used to facilitate trust between the two parties partaking in the transaction. With its decentralised and irrefutable ledger of transactions maintained by the participants in a system, blockchain technology can help establish this trust and share information far more effectively and securely.
A blockchain platform, developed specifically for enterprise usage, can reduce costs, simplify and accelerate the M&A process. At a time when companies need to move quickly to lessen the impact of a pandemic-induced global slowdown, time and cost are critical variables.
By removing cost barriers, a broader selection of companies would be able to consider M&A as a route to protect and enhance their businesses. This includes SMEs with limited resources, which may be amongst the worst affected by the coronavirus crisis. The efficiency and cost benefits also extend to the third parties involved in M&A deals, such as investment bankers and accounting firms.
Clearly, M&A is one of the most commercially sensitive processes in the financial services space, so the technology it uses must be secure, robust and handle data privacy appropriately. Legacy blockchains, like bitcoin and Ethereum, suffer from scalability challenges, low data throughput and privacy frameworks that share all data with all nodes on the network.
Purpose-built enterprise blockchain platforms were designed to tackle these issues while still delivering the core benefits of the underlying technology. A platform that offers a unique privacy-first approach only allows participants in a transaction to view sensitive data, and the platform offers a flow framework that could be leveraged to model various business processes. Further, notaries’ concept can be used to provide a view to regulators. The potential for such a platform to streamline M&A deals and make the process cheaper and faster is vast.
Applications are already being developed on enterprise blockchain platforms that will offer companies a critical lifeline in future times of crisis, such as that in which we currently find ourselves. Our financial services infrastructure must continue its digital evolution if it is to perform its required function for the broadest possible pool of participants when they require it the most – and blockchain will be at the heart of this transformation.
By Nikhil Surve, Associate Director, R3
First Solar to Invest US$684mn in Indian Energy Sector
First Solar is about to set up a new photovoltaic (PV) thin-film solar manufacturing facility in Tamil Nadu, India. The 3.3GW factory will create 1,000 skilled jobs and is expected to launch its operations in Q3 of 2023. According to the company, India needs 25+ gigawatts of solar energy to be deployed each year for the next nine years. This means that many of First Solar’s Indian clients will jump at the chance to have access to the company’s advanced PV.
Said Mark Widmar, First Solar’s CEO: ‘India is an attractive market for First Solar not simply because our module technology is advantageous in its hot, humid climate. It’s an inherently sustainable market, underpinned by a growing economy and appetite for energy’.
A Bit of Background
First Solar is a leading global provider of photovoltaic systems. It uses advanced technology to generate clear, reliable energy around the world. And even though it’s headquartered in the US, the company has invested in storage facilities around the world. It displaced energy requirements for a desalination plant in Australia, launched a source of reliable energy in the Middle East (Dubai, UAE), and deployed over 4.5GW of energy across Europe with its First Solar modules.
The company is also known for its solar innovation, reporting that it sees gains in efficiency three times faster than multi-crystalline silicon technology. First Solar holds world records in thin-film cell conversion efficiency (22.1%) and module conversion efficiency (18.2%). Finally, it helps its partners develop, finance, design, construct, and operate PV power plants—which is exactly what we’re talking about.
How Will The Tamil Nadu Plant Work?
Tamil Nadu will use the same manufacturing template as First Solar’s new Ohio factory. According to the Times of India, the factory will combine skilled workers, artificial intelligence, machine-to-machine communication, and IoT connectivity. In addition, its operations will adhere to First Solar’s Responsible Sourcing Solar Principles, produce modules with a 2.5x lower carbon footprint, and help India become energy-independent. Said Widmar: ‘Our advanced PV module will be made in India, for India’.
After all, we must mention that part of First Solar’s motivation in Tamil Nadu is to ensure that India doesn’t rely on Chinese solar. ‘India stands apart in the decisiveness of its response to China’s strategy of state-subsidised global dominance of the crystalline silicon supply chain’, Widmar explained. ‘That’s precisely the kind of level playing field needed for non-Chinese solar manufacturers to compete on their own merits’.
According to First Solar, India’s model should be a template for like-minded nations. Widmar added: ‘We’re pleased to support the sustainable energy ambitions of a major US ally in the Asia-Pacific region—with American-designed solar technology’. To sum up: Indian solar power is yet the next development in the China-US trade war. Let the PV manufacturing begin.