It is a generally accepted fact that a significant number of M&A deals fail to deliver value post-closing. In a recent survey (the Survey) discussed in the Deloitte 2018 M&A trends report (the Report), 55% of respondents agreed that up to 25% of their M&A deals fall short of meeting or beating expectations. We’ve discussed the factors that can contribute to this failure on a previous blog post and in a recent article, including: cultural and business integration issues, poor due diligence, negotiation errors, lack of involvement by owners, and an overall lack of clarity. Moreover, a lack of discipline and control has been linked to human error and miscalculations, lengthening the M&A process and placing undue financial stress on the transaction, all of which increase the risk of deal failure.
Despite the risk of failure, the Survey indicates that 40% of respondents consider growth through M&A as their best option. With companies facing challenging business environments, intensified transaction speed, and exponential increase in data volume, there is a need to leverage other tools to be able to create value from M&A transactions. Digitalizing the M&A process appears to provide a solution.
Digital tools are not new in the M&A world. Most CFOs are familiar with Excel spreadsheets and virtual data rooms. Thanks to recent advancement in technology, however, new tools have emerged to assist in the digitalization process. Examples include natural language processing systems, which can help analyze large amounts of contractual data in a highly automated manner, and data visualization software, which can be used to reveal the stories behind the abstract numbers of an M&A deal.
These digital tools can contribute to the success of an M&A transaction in several ways:
- freeing up the need to commit resources for repetitive work, minimizing the potential for error, bringing greater accuracy and allowing the team to focus on the areas where a human touch creates more value, such as cultural integration and strategic decision making;
- allowing the deal team to have a fulsome perspective at each stage of the M&A process, keep up with the pace, monitor the anticipated synergies as the deal progresses and keep the progress in track; and
- assisting CFOs in expanding their traditional roles in an M&A transaction, which previously centered around post-deal integration, to the earliest stages of the process, including identifying targets, articulating the thesis and addressing due diligence in a broader context.
Although digitalizing M&A transactions does not guarantee value creation, Survey respondents suggest that these tools have been shown to smooth out the post-M&A integration process, reduce costs and shorten deal cycles.
That said, it may be a significant undertaking for many companies to approach M&A transactions from a new digitalized angle. As pointed out in the Report, it is critical for companies to conduct a careful assessment to determine whether and how a given tool can be used at a particular facet of the transaction to be able to benefit from the new technology.
The author would like to thank Alexandra David, summer student, for her assistance in preparing this legal update.
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