NOTE: This top introduction is redundant from Part 1. The new text begins below the experts photos.
Technology is now widespread throughout all stages of the M&A process, from targeting to due diligence. It has transformed the way that transactions are done. The use of different platforms is facilitating the quick delivery of deal information to a wider group of participants. As a result, crucial stages in a transaction can now be done remotely and simultaneously by several deal parties.
Technology is also affecting other areas of the deal process. Negotiations between buyers and sellers can be less contentious with access to past data. With advanced technology, it has become easy to compare past deals and take away precedents that these parties can agree on and apply to current transactions.
However, despite the advantages, there remain risks. The proliferation of information has heightened the potential for possible leaks of confidential deal data. On top of this, sector-specific issues, particularly in tech-heavy industries, have their own regulatory nuances dealmakers must navigate.
With all these factors coming into prominence, Mergermarket and Vintage gathered five experts to discuss the growing role of technology in the M&A process. In particular, they look at how the presence of technology has unlocked value in M&A deals while tackling the issues of potential risks and regulatory scrutiny.
Q: Is this new technology easily accessible for those engaged in deals? What kind of platforms are available?
Richard Lukaj: Technology is more accessible than ever. In the past, dealmakers largely leveraged proprietary platforms, which were somewhat unique to the institutions that built them. Today there is such a wide variety of information resources made available to every firm. To some degree, companies can buy customized and niche solution sets that can make one firm basically equal to the other in terms of access to information. The overall accessibility to the data and the proliferation of technology that enables it has leveled the playing field between the largest and the smallest firms in terms of data availability.
One new area is these new transactional counterparty databases that are in their early days. Using technology, capital sources that are looking for specific kinds of deals can now connect with parties that are marketing such transactions. These new systems are trying to further refine the marketing of a particular opportunity to those that may not have historically done a certain deal, but have a newly declared interest in the space. They are attempting to introduce another layer of efficiency into dealmaking to include parties that may be interested in an area, but may not have said so publicly.
Matthew Epstein: There are many interesting areas, but the best place to look is virtual data rooms. When I started in this business, I remember preparing and reviewing physical data rooms and going to a room where there were many banker boxes with folders in them. The process of reviewing the data would be limited by how many copies of the data room is made. Additionally, no more than one person could be in the data room at a time because the person was physically in a room. With virtual rooms, literally hundreds of people can be looking at the same document simultaneously. This significantly increases the efficiency of the process and the number of parties that can be included in a particular deal.
Brian Rich: There are plenty of technologies where parties can just go online and get capacity to make the moving of documents easy, which is a big thing for accessibility. Many of these companies are specialized for lawyers, dealmakers, and financial institutions. They are readily accessible and it is easy to sign up and terminate.
Q: In which areas is tech limited in its use in the dealmaking process?
Roger Griesmeyer: Most of the deals I’ve seen done well involved a meeting prior to deal close between the decision makers and a couple of attorneys on both sides with no technology between them. Sitting together humanizes the process for parties who may think they are in disagreement because of previous argumentative conference calls. Through this process, it would be easy to see who really wants to do a deal and what is really important to the parties as opposed to maybe what is a red herring they are using to negotiate some other point.
Matthew Epstein: Indeed, the people aspect of dealmaking is still important. First is the trust in the counterparty. Assessing whether someone is trustworthy is critical because the most valuable asset in a business is time. Dealmakers are always making the assessment on whether doing a task is time well spent, so it is crucial to determine whether the other party is someone to do business with. It’s hard to make that assessment without dealing with them face-to-face.
Another key point is operational talent. Are the managers in a potential acquisition good? Do they motivate their employees well? Can I rely on them to continue to run the business? Can they be a good member of my team? Is the corporate culture sustainable? These questions are very hard to answer without actually meeting people and spending some significant time with them.
Richard Lukaj: Technology either facilitates or provides data in the dealmaking process. However, there’s still a need for experience, knowledge, finesse, and cross-arena intelligence. A transaction involves many components including industry and company variables and tax consequences. There is still no tool where all those variables can be calculated into an algorithm to produce an ideal transaction for either side.
Despite this, the tools are certainly making parties more effective and efficient. It’s also fair to say that individual dealmakers can consider, propose and engage in many more transactions today than you could physically in the prior generation.
Brian Rich: Technology is very helpful, but as Matthew says, dealmakers still have to make a judgment call on the management team, the business and the sectors that they are investing in. Probably 10% of our due diligence process is automated. We are going to care about the same things as we did in the past. If you pulled out a due diligence check list from 10 years ago compared with one today, it will probably be 90% the same.
Conversely, the other question is, can firms overuse technology? Can they take it too far? The answer is yes. I get these inbound emails that make it very clear to me that these people are just sending out hundreds of emails from a list. They don’t follow it up with a phone call and personalize the process. I just disregard those emails. Even with advanced technology, the deal process still requires a personal touch.
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