NOTE: This top introduction is redundant from Parts 1, 2 & 4. 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: What issues can companies face if they are not using technology in the deal process?
James Rosener: You’d be driving a buggy while others are racing cars. You’d be out of the game. These days, if you don’t have a website, if you don’t have access or the willingness to use a VDR, among others, you just don’t exist.
Richard Lukaj: Indeed, companies today cannot be competitive without leveraging these technologies. The market is pricing and maneuvering its resources in a way that requires firms to have these skills and efficiency tools. I can’t imagine that, in this day and age, there are still companies that are doing any volume of business that don’t leverage all of these skills. It might be true for firms that are doing or planning to do a single deal.
But, if a company is not taking advantage of all the available capabilities in the market, then it may be potentially vulnerable to an outcome that is far less than efficient. Unfortunately, in many cases, these things only surface after the deal closes. There might be individual or much smaller businesses that operate on that inefficiency curve, but I don’t think that applies to any reasonably priced transaction today.
Roger Griesmeyer: And the financial cost is just the tip of the iceberg. The often-overlooked deal element is the human resource cost for the transaction parties. It’s one thing if you’re a private equity fund and have staff that are very well trained, experienced and dedicated to doing deals. For a lot of companies that are doing deals, their internal teams might be performing tasks related to the transaction. A company in this situation that is not using technology to make the process as efficient as possible can risk not only doing a bad deal, but also ending up with significant work issues, including employees underperforming during the M&A process.
Sellers might also run into what’s called a material adverse change, which is the deterioration of a company’s financial condition for various reasons that may include sales and financial reporting teams not doing their jobs because they are trying to help with the deal’s execution. If technology is not used to optimize all the processes that are part of buying a company, the company is going to miss something critical on the deal and its business.
Matthew Epstein: In some sense, companies don’t even have a choice, since everyone is using technology. Even Warren Buffett, who is notorious for only doing negotiated deals, uses the Internet to access company information just like everyone else. The US market is wonderful in terms of access to company regulatory filings, which are now all available on the SEC’s website. Previously, people would literally go to the government office and get copies of the 10-Ks and the 10-Qs, scan them and distribute them on CD-ROMs. For companies to say they are not using technology is akin to saying that they are not using the SEC website to view the latest financial data on a firm they are buying.
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