Technology’s role in meeting M&A challenges

April 24, 2020

Mergers and acquisitions have become increasingly complex. To combat growing challenges, businesses have seen greater adoption of innovative software tools used to facilitate deal making. Significant technology acquisitions with the overall aim to gain digital capabilities, have also been witnessed.  

On the whole, M&A activity has trended upward for decades. Accenture Strategy research showed that 84% firms, of the thousand surveyed, acquired another company in the past two years, while a third acquired five or more companies. A further 47% of executives place technology and mobility at the heart of future growth strategies. The figures demonstrate how smaller business, not just the big players, are beginning to venture into M&A as a means to gain access to new products and markets and capitalise on economies of scale.

M&A and technology – why it matters

According to Deloitte’s 2016 M&A Trends report the following factors all play a key role in successful deal making and almost all, with the obvious exceptions, can be facilitated with the appropriate use of technology:

  • Effective integration
  • Economic certainty
  • An accurate valuation of the target
  • Proper target identification
  • A sound due diligence process
  • Stable regulatory and legislative environment

Whilst most companies are not in the tech industry per say, more than 40% of businesses are becoming indirectly involved through M&A.  Findings from global consultancy Bain & Company in 2019 indicated that the surge in activity was increasingly about broadening scope.

Improved due diligence

Arguably amongst the most valuable, underrated and time-consuming aspects of M&A is the due diligence process. The sourcing, collecting and supplying of hundreds of thousands of documents for buyside analysis has historically been a mammoth task for sellers. The use of artificial intelligence (AI) however has drastically changed the deal making landscape adding additional speed and accuracy to workflows. An area that has seen large scale harnessing of AI is the virtual data room (VDR) space.

Highly secure, functional and disruptive digital platforms like Drooms make it easier and quicker to exchange confidential information in a strategic, structured and transparent way irrespective of where third parties might be located. Notable features include:

  • Automated document review

Data room features like Drooms’ Findings Manager enable the automatic filtering of data room content, attributing relevance to search terms, synonyms and related search patterns. The ability to define and quantify potential risks and opportunities specific to a project is also recommended. Results can be then be exported in an Excel sheet for reporting purposes.

  • Q&A

The Q&A workflow is intrinsic to all transaction activity. Certain providers offer fully self-operating Q&A’s which can be set up in minutes. Even complex Q&A processes with several levels of specialist approval can be simple to configure. You can add an attachment to an answer or link the latter to a document in the data room. You can also tailor the Q&A individually according to your needs and automate the workflow.

  • Document Translation

Certain providers have inbuilt translation features decreasing the risk of data leakage and making document analysis in your preferred language possible in real time.

Aside from a detailed rights management system and a reporting process that creates a clear audit trail, a proper VDR should include:

  • 24/7 Project Management

Investing in a provider that has extensive experience in structuring data rooms and has a team of project managers on call and available around the clock seven days a week in multiple languages should not be underestimated.

  • Secure Proprietary Servers

In compliance with European data protection laws, all data should be stored on proprietary servers in the EU or Switzerland. Maintenance of servers should be taken care of by the provider themselves. For premium security, data transfers should be completed via SSL connections only and should be AES 256-bit encrypted.

Enhanced integration and interactions

According to an article entitled: The Big Idea: The New M&A Playbook published in Harvard Business Review, M&A failure rates could be as high as 70% to 90%. The inability to effectively integrate diverging business processes, cultures and workforces post deal are among the most common reasons for M&A failure. Digital technology has however been shown to contribute to a successful transition.

Traditional use of technology during the integration phase has revolved around the use of IT building blocks. Many companies have started implementing business process management (BPM) software and application programming interfaces (APIs). These technologies have the power to make the transition from one IT infrastructure to another a lot smoother, allowing more flexibility and for improved process efficiency. These types of analytical software solutions can also boost post-deal operations by highlighting the most important initiatives to work on or the key issues requiring attention.

Challenges of increased deal making

M&A strategies tend to differ when it comes to tech deals which often include:

  • Distinct pre-deal teams, including deeper involvement of the IT staff and CIO
  • Unique evaluation criteria for investment
  • Separate valuation and cost models

Despite the acknowledgement of issues, actual implementation for many companies remains a challenge with only an estimated 7% of companies able to acquire targets within 120 days.

The future role of technology in M&A transactions

The availability of tools has sped up and changed deal-making. Furthermore, the desire from a variety of sectors to acquire technological capabilities and to enter new markets through M&A is on the rise and will continue to be on the business agendas of many moving forward. Despite Deloitte’s 2020 M&A Trends Survey suggesting a drop in expected deal numbers, 63% of respondents still believe deal volume to increase. The recent outbreak of COVID-19 however makes predicting future activity extremely difficult.

Growing data privacy issues will continue to influence M&A deals. Andy Wilson, a partner at Deloitte & Touche LLP stated:

Data privacy can be a diligence issue. A target company may bring a cybersecurity weakness into the organisation, or a transaction that involves layoffs or other workforce changes may create data security risks. At the same time, data protection and management can be an integration issue, with a newly combined organisation perhaps reaching into new geographies where regulations differ for the handing of data.”

No longer a differentiation advantage, the emergence and strengthening of technological expertise is paramount to survival and has become the price of admission for doing business.

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