2018 has been yet another exceedingly healthy year for mergers and acquisitions (M&A). According to the Institute of Mergers, Acquisitions and Alliances, the capital markets are seeing the highest levels of M&A activity ever, and in 2017 hit over $2.9 trillion for the fourth year in a row. This year is predicted to be no different, marking another historic year in the world of M&A.
According to Deloitte’s Trends Report 2019, M&A activity shows no sign of slowing down anytime soon. Their report also recognizes that, “while the M&A outlook is positive, a sizeable chunk of transactions still fall short of achieving the results initially envisioned. Corporations and private equity firms pin the most blame on external factors, but recognize the need for more effective due diligence and integration to make sure revenue projections materialize.”
As M&A transactions grow in quantity and size, quality due diligence will become increasingly important for successful, profitable and equitable deals.
Due diligence is a vital and, since the Securities Act of 1933, a necessary aspect of M&A transactions. This process can consume as many as several months of high-pressure analysis and data collection, but ideally provides two companies with valuable market share, expanded equity and increased profits. However, if due diligence is done poorly it can lead to cultural clashes, litigation and a massive loss in profits.
As global M&A and transaction values boom, the industry must be poised to handle the increasing significance of due diligence, meanwhile analyzing larger amounts of data than ever before.
With growing market pressure and increased amounts of data, due diligence is becoming more sophisticated and more significant to the M&A process.
Dealmakers who realize this and create a streamlined and efficient diligence process will become competitive and stand out to potential clients. However, if dealmakers continue attacking due diligence with outmoded procedures, they will fall behind as the task becomes increasingly daunting and time consuming.
Technology can help.
Digitizing and modernizing the M&A due diligence process will allow banks to access tools which provide increased security, centralized project management, improved data storage, and important analytics. However comfortable the old way may seem, relying on disorganized email chains, large Excel files and information silos will only add to the pressure of conducting diligence in today’s global marketplace.
Deals require analysis of large amounts of data in a short period of time. Technology such as virtual data rooms (VDRs) and project management software can help improve efficiency by centralizing documents, allowing for less email correspondence and encouraging multi-party collaboration on one outlet.
By using this type of technology, with machine learning capabilities, data can be gathered and analyzed in a fraction of the time. Embracing technology and software into the M&A process will also allow dealmakers to move away from repetitive, laborious tasks so that they can focus on more valuable projects.
Innovating the M&A due diligence process has been slow moving. However, technology trends are evolving and creating deals that are more secure, successful and efficient.
More so than ever, dealmakers are employing analytics to provide themselves with accurate and fast information that is vital during the due diligence process. Strong analytics deliver high-valued data that drive insight and improve strategic decision making. These analytics greatly save time by providing necessary information in a way that is easily consumed and visualized. Actions are taken quicker and with more confidence, while giving dealmakers clear next steps and executions.
During diligence, instead of bulk downloading all documents to view offline, deal teams are now able to run the process through one platform with analytic capabilities, generating information that may otherwise be lost such as buyer engagement, preferred documents and details important for integration.
Artificial intelligence (AI) and machine learning is finally making its way to the finance industry. AI has the ability to solve real problems with precision and speed, and also make suggestions to dealmakers based on data analytics and foresight. Many financial technology and software companies are already beginning to roll out features which use AI and machine learning, launching M&A due diligence into the 21st century.
For example, AI advancements like the ‘recall’ feature automatically suggest files that previously answered similar questions or requests. This helps eliminate duplicate work and significantly saves time.
Data breaches, cybersecurity and data privacy risks are extremely important issues that face due diligence and overall M&A transactions. A data breach can easily kill a deal or lower it’s value by millions, as seen rather publicly during Verizon's acquisition of Yahoo.
Secure virtual data rooms and document sharing technology is available and must be utilized by all parties during and after the M&A process, to keep important and sensitive information safe.
M&A transactions and due diligence processes require large teams of hardworking analysts and associates. Organizing their collaborative efforts and directing their work can be challenging as well as inefficient. Many times, directors rely on long and disorganized email chains to communicate and delegate work.
Project management tools allow for a more efficient way to manage deal teams. These due diligence software development platforms centralize communication, delegate workflows, track progress, and provide clarity as well as accountability.
Dealmakers face a variety of challenges during M&A transactions, especially while conducting due diligence. Thousands of documents are requested, shared and analyzed to ensure an equitable outcome. Technology is constantly evolving and emerging to help dealmakers handle all aspects of due diligence.
In order to complete deals more securely, efficiently and successfully, the industry must utilize and adapt to these developments and trends in financial technology, creating sophisticated due diligence processes that will launch M&A into the modern era.