How the tech transition is transforming M&A due diligence

Even amidst the harsh economic impact of the COVID pandemic, global mergers and acquisition (M&A) activity refuses to slow down, with deal activity in the first six months of 2021 reaching $2.6 trillion – a new high for the M&A industry

The EMEA markets remain particularly resilient, according to Datasite’s latest ‘Deal Drivers’ report which found record deals worth €578 billion in the first half of the year – a 15 percent rise on H2 2020.

With digitisation throughout the industry accelerating, it looks as though M&A is set to shatter more records in 2021 thanks to increased efficiency and modernisation. However, with rapid digital transformation comes the need for more security as without this, dealmakers’ risk financial fines and possible reductions in target companies’ valuations.

Dealmakers are now required to manage the entire M&A lifecycle – from preparing an asset, conducting an efficient asset marketing process, and launching an effective and secure due diligence phase – all whilst managing a hybrid deal team. So, while technology is clearly transforming the management of M&A deals, prioritising secure data transfer practices is key. With M&A professionals relying on collaborative digital tools more than ever in the new Covid-era hybrid working models, it is even more important.

As regulations tighten, dealmakers must turn their attention to future-proofing M&A management with technology that allows them to maximise compliance and reduce any risk or privacy breaches during the due diligence processes.

Virtual data rooms and advanced analytic capabilities

In recent years, we’ve seen the due diligence landscape overhauled with the emergence of virtual data rooms (VDRs), which have improved the speed and security of transactions by providing dealmakers with direct access to the information needed to conclusively determine whether they should pursue a deal.

With their advanced analytic capabilities, VDRs have transformed M&A activity by supporting the work flows that allow the due diligence process to become faster and far more efficient. VDRs have also provided a safe place for dealmakers to exchange confidential information in a structured way, offering advanced access control to redacting or blacklining, and improving process efficiencies and operational flow. By using additional applications, including two-factor authentication, VDRs can minimise security breaches throughout the entire due diligence process. If non-relevant personal information, phrases and images can be easily hidden from within the data room, it can improve document accuracy and security, improving deal efficiency and regulatory compliance.

Artificial intelligence and machine learning

It comes as no surprise that due diligence – a key asset prepping phases – is one of the most time-consuming elements of the M&A lifecycle, and t important to get right. Due diligence can make or break a deal. In fact, a recent survey found that reviewing all the documents related to a transaction was the main cause for delays. However, there is often limited time to complete due diligence activities during a high-value deal process.

Yet, with artificial intelligence (AI) and machine learning capabilities, VDRs significantly speed up the process by automating repetitive and time-consuming tasks, such as multilingual search capabilities, risk and compliance reviews, and contract analysis, so that dealmakers can focus on executing deals, rather than being caught up in endless streams of data. By utilising these digital tools, workflow accuracy improves and organisational challenges which often hinder the due diligence process are solved. These AI technologies automatically sort, assess, and classify thousands of documents in minutes, transforming the due diligence process into a more proactive and data driven operation. As well as extending dealmakers’ bandwidth by allowing them to move away from the more administrative and time-consuming tasks, this also ensures regulatory compliance.

Following the introduction of The European Union’s General Data Privacy Regulation (GDPR), in 2018, businesses have been required to strengthen their data protection processes and failure to comply to the extensive policies can result in substantial repercussions including fines of up to 4 percent of global annual revenue, or €20 million. In the case of M&A, there is an added complexity given that it has slowed due diligence and even caused some deals to falter.

Although these regulations pose complexities for the M&A lifecycle, AI and machine learning remain a support for dealmakers trying to navigate the challenges within the due diligence process. We know that 69 percent of EMEA practitioners expecting data privacy regulations, like GDPR, to be a key consideration on M&A due diligence in five years’ time, so the ability to search and bulk redact sensitive information within seconds will only become more pivotal to improving deal efficiency.

Cybersecurity considerations

With data breaches surging in recent years, particularly during the pandemic, cyber attacks have become an increasingly prevalent threat for financial services and professionals. The Bank of England has separately given financial services companies until March 2022 to deliver detailed plans on how they would handle a cyber-attack. According to recently published data, 55 percent of M&A dealmakers across the EMEA region have worked on M&A deals that failed to progress due to concerns around a target company’s data protection policies and adherence to privacy regulations.

Consequently, cybersecurity audits will become even more valuable during the M&A due diligence process and today’s technologies are providing a far more efficient approach. Data analytics and machine learning can provide vital insights during the research stage of due diligence by sifting through and categorising contracts, indexing their content for search purposes, and reporting on the security protocols of a business.

Nowadays, dealmakers can turn to these advanced technologies to provide vital business intelligence as well as a comprehensive assessment of a business’s security policies. In addition to speeding up the due diligence process, this technology can facilitate better and more proactive decision making.

Looking to the future

Despite the trials and tribulations posed by the Covid-19 pandemic, M&A has continued to flourish, and we should expect to see a competitive bidding landscape emerge with new market players driving much higher valuations.

Amid this climate, the tech transition is providing stability and offering leaders a competitive edge – ensuring greater speed, accuracy, and security across the due diligence process. If companies are to future proof successful dealmaking practices, they must continue to innovate or they run the risk of deals unravelling. In today’s market, survival of the fittest means evolving fast. Technology can help dealmakers remain on top of their game.


About the Author

Merlin Piscitelli is Datasite’s Chief Revenue Officer for EMEA. Datasite is a leading SaaS provider for the M&A industry, empowering dealmakers around the world with the tools they need to succeed across the entire deal lifecycle.

Featured image: ©Nirut Sangkeaw

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