Making the Case for Using Technology in M&A

Technology – specifically, the cloud – is the de facto way of working for many companies today. Using tech to support processes is widespread across insurance and legal sectors, for instance. LegalTech and InsurTech are two major areas that are capturing efficiencies and becoming more effective via the use of technology. Over the years, an increased number of M&A teams have adopted various forms of technology to support their transactions. However, the M&A space lags behind.

Put simply, many M&A teams are “digitally immature” and need to embrace the use of technology in the M&A process before they become outpaced – and outmanoeuvred – by more forward-looking competition.

The greatest use of technology in work processes was seen in 2021 – with 2022 set to surpass this. After the COVID-19 pandemic started in 2020, and as businesses started to adapt to a new work mode in order to maintain competitiveness (and in some instances, merely survive), a growing number of digital transformation programs (the process by which companies embed technologies across their businesses to drive fundamental change) were undertaken. The rush to develop digital capabilities has not abated and is set to continue into 2023 and beyond.

The Need for Change

The M&A landscape is changing. Nowadays, many companies are executing programmatic M&A, whereby they are closing deals on almost  continuous basis. It’s not uncommon for us at Navima to speak with M&A teams that are looking to close – on average – a deal every one to two months. Such companies are constantly searching for high quality targets to maintain deal velocity and enhance their capabilities. But as deal pace intensifies and complexity increases in line with ever changing business models, M&A processes need to change to accommodate the shift.

Undertaking digital transformation requires a change of mindset. And let’s be clear, we are not talking about computers replacing people and job roles becoming obsolete. M&A requires (in our opinion!) too much of a human touch for that to ever happen. Rather, digitalisation provides the chance for an M&A team – and even a company overall – to run a post-mortem on current processes/ways of working, to address what is broken and fix it.

For most M&A teams, digitalisation will involve a shift away from disconnected ways of working – think patching various software solutions together, manually creating update decks via Excel and PowerPoint and no single source of truth.

We regularly speak to M&A teams that estimate up to 50% of the time they spend on a deal relates to inefficient processes, repetitive admin and manual report creation. And therein lies a compelling reason for M&A teams to change – it allows ALL team members to move up the value chain and focus on what’s really important across a deal – rather than the process.

Technology will typically deliver speed and accuracy; however, it's important for dealmakers to drive their deals and decisions by retaining some human touch in order to mitigate risks. The Negotiation phase is one example that cannot be tackled without human interactions and understanding counter-parties. Therefore, when using technology, it's generally better to target the most time-consuming and recurring tasks to be solved by the technology.

How can Technology Facilitate M&A Processes?

Today’s technological advances provide dealmakers with a more transparent and efficient way of managing and digitalising their workflows. The most widespread – and basic – use of the technology for M&A deals is via cloud storage. Dealmakers are able to access documents anytime and from anywhere worldwide – allowing for better collaboration and organisation of documents in one location. Going a level further, one of the most popular technologies used to support M&A transactions are Virtual Data Rooms (VDRs). Teams can safely store sensitive information and access them from any device, anytime. Today, AI-powered Data Rooms can even provide forecasts and insights for a clearer deal outcome. Virtual Data Rooms have improved the efficiency and security of work that has previously been completed physically.

But the use of technology in M&A goes well beyond cloud storage, while VDRs have limited application given they are a point solution and do not support the end-to-end M&A process.

Similar to digitalisation in other sectors, wrapping cloud technology around M&A workflows has numerous benefits. Some of the inevitable advantages of its implementation are transparency, speed and efficiency. The ability to collaborate effectively is increased. Workloads can be better managed and resourcing controlled. Visibility is magnified. Bottlenecks are easier to identify and therefore, to remove.  However, when compared with other business processes, there is a limited number of cloud technology platforms designed specifically for M&A. 

Examples of how cloud technology facilitates M&A transactions:

• All documents, playbooks, tasks and reports are securely managed from one location, easily accessed via the cloud. 
• Allows you to systematically manage your M&A workflow – providing you with greater visibility, consistency and efficiency – while putting an end to communication bottlenecks and siloed working.
• Eradicate the culture of copying from Excel and pasting into PowerPoint. It’s typically more junior, highly educated team members that bear the brunt of this archaic way of working. Going digital can fee up a significant amount of time for them to focus on higher value work.
• AI automatically generated visualisations anticipate questions and uncover hidden insights without needing to create additional reports.

If most of a company’s growth comes from inorganic growth activity such as M&A, then there is surely a compelling argument to improve the underlying process that generates growth – via digitalisation. Furthermore, new ways of working often have a compounding effect which, in turn, can drive innovation and spur company growth at the fundamental level.

Mitigating M&A Risks with Tech

The truth is that email is not a secure channel for sending information. Therefore, you should never send sensitive M&A data or information in an email, whether written in the body or as an attachment. It’s all too easy for a highly sensitive document to end up with the wrong recipient whether due to poorly configured email access rights, poor password hygiene or simple human error.

Sharing information via the cloud is widely regarded as safer than email. However, one of the major vulnerabilities of  any cloud technology solution that stores data is a data leak or breach. Indeed, cloud-based cyber-attacks have become more widespread since the start of the pandemic. In 2021, the average number of cyberattacks and data breaches increased by 15.1% from the previous year

When selecting a cloud M&A platform, it’s therefore imperative to focus on the vendor’s security credentials.

Examples of what to look for:  

• Ability to track user activity and generate audit trail reports, including who has viewed, downloaded, created, updated and deleted content and logged in to their account. 
• Encrypted backups and additional security measures such as two-factor authentication, complex passwords and controlled user-based permissions.
• End-to-end encryption, with 256-bit SSL in transit and AES encryption at rest — the same level of encryption used by banks.
• International information security management certifications such as ISO 27001.

Technology Complexity

Implementing technology may lead not only to digitalisation of the process but also to building a new operating capabilities. Instead of doing what they already do in a slightly better way, M&A teams should use digitalisation as an opportunity to rethink a process from the ground up, starting with the problem they are trying to solve and the outcome they want to achieve.

When choosing a new technology solution, several aspects need to be identified and clarified at the very early stages. Digital transformation projects are about change. They require hard work both upfront and post-transformation. They also require careful preparation prior to the project start.

Questions that can be asked include:

• What is the driver for transformation/change?
• What are the most painful aspects of our current M&A process? 
• Do we know what success looks like?
• Are we just going to be recreating old processes with new tools? (*a typical pitfall of a digital transformation project is to take an old inefficient process and turn it into a new inefficient process)
  

Takeaway

Technology can have a hugely beneficial impact on M&A. A powerful, modern and secure M&A platform allows for more flexible and controlled work across deal teams, systems, and data. Furthermore, an M&A platform enables teams to secure their documents, collaborate and communicate easily, automate manual work and create more efficient workflows.

M&A platforms map the whole timeframe of a deal in one place from the very start to its completion, which makes it easier when storing documents, collaborating between team members and executing with fewer errors. A combination of M&A professionals and technology can be a potent mix and result in a better and more efficient way of completing M&A deals.

About the Author

Prior to joining Navima, Nuray worked in marketing and communications for a company in Azerbaijan specialising in Engineering, Supply Chain Management and Procurement– including content creation, research, product launches and sales.

Nuray graduated from the University of Sussex with a bachelor's degree in Business and Management Studies, recently finished a Master's degree in Global Supply Chain Management at Bayes Business School (Cass) and is fluent in five languages.