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Technology is nothing new in M&A: The first dealmaking platforms, among them the world’s largest - BizBuySell - arrived at the birth of the commercial internet in the mid-1990s.
What has changed since then is that technology is no longer a feature of M&A - now, it defines it. In this article, we look at the top X M&A tools you should (not) be using.
There is a tool for every stage of the M&A process - ample evidence of the role that technology plays.
BizBuySell, which was mentioned in the first section and the myriad other platforms like it (think Smergers, MergerMarket, Aurigin, and others), are primarily used at the pre-deal phase.
But every phase has its own requirements.
Below, we look at some of these requirements in detail as well as the tools being used to deliver them.
The pre-deal phase involves setting the scene for a transaction: evaluating the potential benefits, risks, and feasibility of a deal. In a typical sequence, it involves internal discussions about why the company should consider a merger or acquisition, market research into the potential options, development of a short list of potential targets, target screening, and initial contact made with the target company management.
This phase has typically been dominated by databases like those mentioned, wherein the user searches by keywords, industry specialization, company location, company revenue, and other filters.
Other tools which have typified this phase include spreadsheets and perhaps even basic CRM packages.
All these tools are fine, and have contributed to M&A reaching its current scale, but like most software from the 1990s, they’re lacking something: Practitioners now look for something more collaborative, more data friendly, and ultimately, more efficient.
If the initial contact with the target company is received favorably, the next step is information exchange, and due diligence. If information is exchanged correctly (i.e., transparently and fully), there will be bigger levels of information than most laypeople are comfortable with reading, let alone digesting.
When an Excel file for a single departmental function can have upward of a dozen tabs, it’ s not difficult to see how things can become unwieldy very quickly.
Receiving the information, therefore, is not enough. The information has to be assimilated and interpreted for managers to make more informed decisions. That means it can’t sit in an email folder, and Early VDRs were one-dimensional memory drives, which did what they said they’d do, which wasn’t very much.
M&A practitioners have demanded more, leading to a large array of VDR solutions, which offer far more than just storage.
By continuing to add to these platforms, they also increase the reliance of investment bankers and others on technology to drive the process. This can be seen in how DealRoom charts the progress of each task, enables participants to collaborate within the platform, and even user hierarchies.
To those on the outside, the deal execution phase may seem like little more than an exercise of crossing i’s and dotting t’s.
Just bring the contract, and make sure everybody shows up on time.
But at this phase too, the impact of technology is highly visible. It’s now not uncommon for deals to close without anybody ever meeting around a table. In fact, the proportion of deals that close without a physical meeting is growing much faster than the alternative.
If this seems impersonal, that isn’t the intention: Deal participants will still meet via teleconference. It’s just another way of increasing efficiency.
Contracts can be created in traditional word format, with both sides making comments on tracts of the text that could be edited or removed. Everybody that needs to read the contracts gains full visibility over anything which needs to be brought to their attention.
In the case where contracts run into dozens of pages, NLP algorithms can be used to extract key data from the contracts for decision makers and in-house legal counsels.
Legal compliance software can also ensure that the contract details don’t present any risks for those signing. When everything has passed muster, the contracts can even be signed via electronic signature technology (just in case anybody forgot their Parker pen).
By this stage, you’ll already have guessed that the post-merger integration (PMI) stage is also characterized by the use of technology.
What’s particularly interesting about the PMI stage is that it wasn’t too long ago that companies involved in transactions paid very little heed to its importance.
Now, perhaps only due diligence can match the PMI stage for the importance of the use of technology, and the number of options available to practitioners.
As a crude rule, the more complex the transaction, the more value that can be created or destroyed at the PMI stage.
This makes the use of project management and communications tools inadmissible.
The emphasis moves from document sharing to fulfilling tasks - communicating changes to employees, ensuring cultural issues are addressed, and merging the companies’ various systems.
Technology can become a victim of its own success.
If a practitioner uses too many tools, the ultimate aims of them - increasing efficiency and deal oversight - can be lost in the constant switching between platforms, and moving documents from one platform to another.
A common example of this can be seen every time you try to use a new online meetings platform and spend the first ten minutes of the call resolving technical issues.
This is called the fragmentation problem.
By delegated (or ‘fragmenting’) the necessary tasks to too many platforms, efficiency gains are lost. Instead, M&A practitioners should seek to maximize their technology usage but minimize the number of platforms.
This ultimately means they choose a project management platform such as DealRoom: Almost everything in one solution, for all the deal’s stakeholders, for the duration of the transaction.
Virtual data rooms are now a ubiquitous part of every serious M&A transaction.
They offer M&A practitioners a secure online repository where they can store and share confidential documents from the due diligence process right through to the PMI stage.
They also provide controlled access to authorized parties, facilitate document control, and streamline the exchange of information between all deal stakeholders.
This growing range of capabilities means has led PMI to become project management tools in and of themselves.
Experienced M&A practitioners, including blue chip investment bankers, now depend on them for guiding them through the process. This could be for continuous collaboration with other stakeholders, providing intelligent checklists and workflows, and even unprompted reminders about their own tasks to be fulfilled.
Unsurprisingly, given the scale of the global M&A industry, a plethora of these tools has arisen over the past decade, creating the ‘race to the top’ that was spoken of in the section on the different M&A phases.
The following VDR comparison provides a useful overview of what we regard as the best of these tools.
Many of the technology-based project management tools that are used in M&A have their origins in the traditional tools, which were widely in use until not so long ago.
These include Gantt charts (usually spread over the surface of an investment banker’s wall), work breakdown structures (WBS), network diagrams, physical Kanban boards, and inevitably, reams and reams of project progress documentation.
Virtual Data Rooms (VDRs) marked a significant leap forward from physical data rooms, offering a secure digital space for storing and sharing sensitive documents.
While they have their advantages, in comparison to a full-fledged M&A management platform like DealRoom, they fall short on several fronts:
From due diligence checklists to financial analysis, spreadsheets have served as the trusty steed for many M&A professionals. But they carry their fair share of burdens. Human error in data entry, difficulties in version control, and issues with secure data sharing are but a few of the pitfalls that plague spreadsheet use in M&A.
Despite being a primary communication tool, emails can create a labyrinth of threads that bury critical deal information. How often has an essential piece of intel been lost in the email abyss or an important attachment overlooked?
While shared drives offer some relief in document storage and accessibility, they fall short in providing the rigorous security and audit trails that M&A transactions demand. Who accessed which document and when? The lack of clear answers could spell trouble.
The traditional tools use for project management in M&A were useful: Excellent deals did happen. It’s just that the best deals happened in spite of the technology that existed, not because of it.
Typical issues that dogged M&A processes because of inadequate technology included:
Mergers and acquisitions is a particularly complicated process because of all the moving parts. If we compare the merger of two companies with a traditional project management process - say, that for a large construction development - M&A has far more requirements in terms of coordination, management of resources, and maintaining timeliness and organization.
This goes for even relatively straightforward M&A transactions.
Consider the effect of omitting an important piece of due diligence in M&A. It could cost a company millions. Numerous cases have shown that it does. In extreme cases, it can lead to the deal being written off entirely.
There is scarcely an equivalent in construction development - the building’s construction may be dogged by issues, delays, and setbacks. But it will inevitably be built, and won’t be written off in the same way as a troublesome M&A transaction.
This is why project management is so crucial.
For a deal to be successful, each one of those moving parts has to be taken under control of the deal’s participants. Whether it’s ensuring that the company’s accounting and control systems are being merged properly, keeping tabs on which roles are being filled and by whom, managing overlapping supply chains, or even rejigging board rooms, project management software ensures all parties are on the same page.
Statistics generated by feedback provided by DealRoom’s users quantify the impact of this pivot. Highlights include:
This article should convince anybody of the necessity of moving from traditional tools (by which we mean Excel, Email, and CRM) to a more sophisticated way of getting M&A transactions done (project management and other collaboration tools).
Too often the expression ‘paradigm shift’ is used, but in this case, it’s applicable: Moving from these tools is like moving from a symbian phone to a smartphone.
And nobody wants a situation where their company is using a symbian phone, while their rivals for deals are using smartphones.