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How Technology is Changing Investment Banking

Show Notes Of Podcast

The sometimes astronomical commissions charged by bankers means that there’s always an incentive to introduce technology to investment banking and the M&A process. Where some see high margins, the entrepreneur sees an opportunity, and increasingly that means bringing technology to the fore. A clear example of this is the numerous banking platforms that already exist, which bring the buy-side together with the sell-side, taking a nominal fee if a deal closes.

The ‘digital disruption’ of investment banking may appear less obvious in investment banking than in other industries (it hasn’t wiped out investment bankers almost entirely in the same way that Uber has done for traditional taxi drivers, for example), but it is having an effect.

For now, the most adept bankers are using the technology to their advantage, rather than being replaced by it. Don’t get left behind. Here are some of the changes taking place right now.

1. Artificial Technology

We start with the elephant in the room. AI is the overriding technological trend of the last decade and will probably continue to be so for the coming one.

And the more sophisticated that AI becomes, the more likely it is to replace those processes currently carried out by humans. In dealmaking, this means deal origination, company search, due diligence (financial, legal and more) and even change management could all be partly taken care of by artificial intelligence.

The widespread usage of AI in trading means that, should a company be public, a potential buyer could employ an artificial intelligence-powered trading platform to buy up shares in the lead up to a takeover bid.

It can also replace many of the routing tasks currently carried out by overworked analysts, possibly meaning that the future investment banker is more likely to come from industry rather further down the food chain in the bank itself.

2. Direct Listing Technology

As we stated in a previous article, preparing for Initial Public Offerings is a drain on time on cash for most companies. And the bigger the company, the bigger the drain. One million dollars is the most commonly cited expense for an IPO, giving some idea of what’s required.

A series of companies, from Spotify to Palantir, have opted for direct listings in recent years, removing bankers from the process almost entirely.

Add to this a proposal by the NYSE to lower the barriers for direct listings which was approved by the SEC in August 2020, and we can safely expect to see a lot more direct listings (i.e. bypassing the IPO process) in the near future.

This, in turn, is likely to lead to a host of new platforms which help small and medium-sized companies through the direct listing process. We can reasonably expect a range of off-the-shelf technology solutions for direct listings, saving companies millions in the process.

3. Natural Language Programming

Sometimes mixed together with Artificial Intelligence, Natural Language Programming uses elements of the former and analyses the interactions between computers and the human language. One application of this might be to take a company’s SEC filings or annual reports from the past 3 years, combine them with a few internal company presentations, and within minutes, create an attractive, investor-ready investment memorandum.

Most important perhaps, would be the ability of NLP to spot issues that aren’t immediately obvious to those conducting due diligence - previously fraudulent behavior, unusual past transactions, issues arising in the depths of the internet, etc.

This could be particularly relevant where a company is making a foreign direct investment and doesn’t have anybody on their team fluent in the language used by that company’s country. Step in NLP to take care of the rest.

4. Virtual Data Rooms

As DealRoom pointed out before, a rising amount of data (something that deals of all sizes can now count on) requires more space for that data. And not just space, but somewhere that deal participants can share that data that’s relevant to them, draw the attention of others to it, communicate what needs to be said, and generally make the deal process both more effective and more efficient.

This is the role of the virtual data room (VDR), DealRoom’s own area of expertise. Our virtual data rooms empower deal makers with better productivity, enhanced compliance and security, lower cost deal making and the assurance that nothing important will get lost. Naturally, we highly recommend that anyone taking part in the dealmaking process takes advantage of this particular piece of technology.

Conclusion

If someone had said twenty years ago that in 2020, the world’s largest asset managers would be offering funds with fees hovering close to zero, people would have scoffed that it was just the latest example of dot com hysteria. But the rise of robo advisors means that this is now a reality.

And far from being a short-term trend, the technology is becoming more sophisticated by the day, forcing asset and wealth managers to find increasingly creative justifications for their fees.

It would be naive of us to believe that a similar disruption is not about to occur in investment banking. There are several stages of the process that a good lawyer or investment banker adds value, but equally, technology has the potential to have an impact on those process and probably eventually take over altogether.

Your future corporate development team might be nothing more than an app on your phone that reports back to you every month.

m&a data room

The sometimes astronomical commissions charged by bankers means that there’s always an incentive to introduce technology to investment banking and the M&A process. Where some see high margins, the entrepreneur sees an opportunity, and increasingly that means bringing technology to the fore. A clear example of this is the numerous banking platforms that already exist, which bring the buy-side together with the sell-side, taking a nominal fee if a deal closes.

The ‘digital disruption’ of investment banking may appear less obvious in investment banking than in other industries (it hasn’t wiped out investment bankers almost entirely in the same way that Uber has done for traditional taxi drivers, for example), but it is having an effect.

For now, the most adept bankers are using the technology to their advantage, rather than being replaced by it. Don’t get left behind. Here are some of the changes taking place right now.

1. Artificial Technology

We start with the elephant in the room. AI is the overriding technological trend of the last decade and will probably continue to be so for the coming one.

And the more sophisticated that AI becomes, the more likely it is to replace those processes currently carried out by humans. In dealmaking, this means deal origination, company search, due diligence (financial, legal and more) and even change management could all be partly taken care of by artificial intelligence.

The widespread usage of AI in trading means that, should a company be public, a potential buyer could employ an artificial intelligence-powered trading platform to buy up shares in the lead up to a takeover bid.

It can also replace many of the routing tasks currently carried out by overworked analysts, possibly meaning that the future investment banker is more likely to come from industry rather further down the food chain in the bank itself.

2. Direct Listing Technology

As we stated in a previous article, preparing for Initial Public Offerings is a drain on time on cash for most companies. And the bigger the company, the bigger the drain. One million dollars is the most commonly cited expense for an IPO, giving some idea of what’s required.

A series of companies, from Spotify to Palantir, have opted for direct listings in recent years, removing bankers from the process almost entirely.

Add to this a proposal by the NYSE to lower the barriers for direct listings which was approved by the SEC in August 2020, and we can safely expect to see a lot more direct listings (i.e. bypassing the IPO process) in the near future.

This, in turn, is likely to lead to a host of new platforms which help small and medium-sized companies through the direct listing process. We can reasonably expect a range of off-the-shelf technology solutions for direct listings, saving companies millions in the process.

3. Natural Language Programming

Sometimes mixed together with Artificial Intelligence, Natural Language Programming uses elements of the former and analyses the interactions between computers and the human language. One application of this might be to take a company’s SEC filings or annual reports from the past 3 years, combine them with a few internal company presentations, and within minutes, create an attractive, investor-ready investment memorandum.

Most important perhaps, would be the ability of NLP to spot issues that aren’t immediately obvious to those conducting due diligence - previously fraudulent behavior, unusual past transactions, issues arising in the depths of the internet, etc.

This could be particularly relevant where a company is making a foreign direct investment and doesn’t have anybody on their team fluent in the language used by that company’s country. Step in NLP to take care of the rest.

4. Virtual Data Rooms

As DealRoom pointed out before, a rising amount of data (something that deals of all sizes can now count on) requires more space for that data. And not just space, but somewhere that deal participants can share that data that’s relevant to them, draw the attention of others to it, communicate what needs to be said, and generally make the deal process both more effective and more efficient.

This is the role of the virtual data room (VDR), DealRoom’s own area of expertise. Our virtual data rooms empower deal makers with better productivity, enhanced compliance and security, lower cost deal making and the assurance that nothing important will get lost. Naturally, we highly recommend that anyone taking part in the dealmaking process takes advantage of this particular piece of technology.

Conclusion

If someone had said twenty years ago that in 2020, the world’s largest asset managers would be offering funds with fees hovering close to zero, people would have scoffed that it was just the latest example of dot com hysteria. But the rise of robo advisors means that this is now a reality.

And far from being a short-term trend, the technology is becoming more sophisticated by the day, forcing asset and wealth managers to find increasingly creative justifications for their fees.

It would be naive of us to believe that a similar disruption is not about to occur in investment banking. There are several stages of the process that a good lawyer or investment banker adds value, but equally, technology has the potential to have an impact on those process and probably eventually take over altogether.

Your future corporate development team might be nothing more than an app on your phone that reports back to you every month.

m&a data room

The sometimes astronomical commissions charged by bankers means that there’s always an incentive to introduce technology to investment banking and the M&A process. Where some see high margins, the entrepreneur sees an opportunity, and increasingly that means bringing technology to the fore. A clear example of this is the numerous banking platforms that already exist, which bring the buy-side together with the sell-side, taking a nominal fee if a deal closes.

The ‘digital disruption’ of investment banking may appear less obvious in investment banking than in other industries (it hasn’t wiped out investment bankers almost entirely in the same way that Uber has done for traditional taxi drivers, for example), but it is having an effect.

For now, the most adept bankers are using the technology to their advantage, rather than being replaced by it. Don’t get left behind. Here are some of the changes taking place right now.

1. Artificial Technology

We start with the elephant in the room. AI is the overriding technological trend of the last decade and will probably continue to be so for the coming one.

And the more sophisticated that AI becomes, the more likely it is to replace those processes currently carried out by humans. In dealmaking, this means deal origination, company search, due diligence (financial, legal and more) and even change management could all be partly taken care of by artificial intelligence.

The widespread usage of AI in trading means that, should a company be public, a potential buyer could employ an artificial intelligence-powered trading platform to buy up shares in the lead up to a takeover bid.

It can also replace many of the routing tasks currently carried out by overworked analysts, possibly meaning that the future investment banker is more likely to come from industry rather further down the food chain in the bank itself.

2. Direct Listing Technology

As we stated in a previous article, preparing for Initial Public Offerings is a drain on time on cash for most companies. And the bigger the company, the bigger the drain. One million dollars is the most commonly cited expense for an IPO, giving some idea of what’s required.

A series of companies, from Spotify to Palantir, have opted for direct listings in recent years, removing bankers from the process almost entirely.

Add to this a proposal by the NYSE to lower the barriers for direct listings which was approved by the SEC in August 2020, and we can safely expect to see a lot more direct listings (i.e. bypassing the IPO process) in the near future.

This, in turn, is likely to lead to a host of new platforms which help small and medium-sized companies through the direct listing process. We can reasonably expect a range of off-the-shelf technology solutions for direct listings, saving companies millions in the process.

3. Natural Language Programming

Sometimes mixed together with Artificial Intelligence, Natural Language Programming uses elements of the former and analyses the interactions between computers and the human language. One application of this might be to take a company’s SEC filings or annual reports from the past 3 years, combine them with a few internal company presentations, and within minutes, create an attractive, investor-ready investment memorandum.

Most important perhaps, would be the ability of NLP to spot issues that aren’t immediately obvious to those conducting due diligence - previously fraudulent behavior, unusual past transactions, issues arising in the depths of the internet, etc.

This could be particularly relevant where a company is making a foreign direct investment and doesn’t have anybody on their team fluent in the language used by that company’s country. Step in NLP to take care of the rest.

4. Virtual Data Rooms

As DealRoom pointed out before, a rising amount of data (something that deals of all sizes can now count on) requires more space for that data. And not just space, but somewhere that deal participants can share that data that’s relevant to them, draw the attention of others to it, communicate what needs to be said, and generally make the deal process both more effective and more efficient.

This is the role of the virtual data room (VDR), DealRoom’s own area of expertise. Our virtual data rooms empower deal makers with better productivity, enhanced compliance and security, lower cost deal making and the assurance that nothing important will get lost. Naturally, we highly recommend that anyone taking part in the dealmaking process takes advantage of this particular piece of technology.

Conclusion

If someone had said twenty years ago that in 2020, the world’s largest asset managers would be offering funds with fees hovering close to zero, people would have scoffed that it was just the latest example of dot com hysteria. But the rise of robo advisors means that this is now a reality.

And far from being a short-term trend, the technology is becoming more sophisticated by the day, forcing asset and wealth managers to find increasingly creative justifications for their fees.

It would be naive of us to believe that a similar disruption is not about to occur in investment banking. There are several stages of the process that a good lawyer or investment banker adds value, but equally, technology has the potential to have an impact on those process and probably eventually take over altogether.

Your future corporate development team might be nothing more than an app on your phone that reports back to you every month.

m&a data room

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