After the latest pandemic events (covid19), the new interconnection among people, activities and “things” will radically change the existing business models; in this scenario, new technologies and tools give the opportunity to radically transform the business models and create new products and services. Digitalization is based on innovative IT infrastructures whose pillars are represented by Mobile, Cloud, Big Data and Analytics technologies.
This transformation is accelerated by the Internet of Things, the evolution in machine learning and innovations such as blockchain. In particular, strategy activities are the first ones to strongly benefit from digitalization, as confirmed by the high return on these digital investments.
Digital capabilities can be applied to M&A activities in a few ways. More M&A professionals are familiar with virtual data rooms providing a secure online environment (regardless of the location of team members) or allowing the review of the huge amount of data associated with potential targets. Cloud-based enterprise resource planning systems can simplify some recurring IT problems during the integration phase (e.g. the integration of different software suites). Natural language processing allows the M&A team to easily analyze an enormous quantity of contracts and documents (in an automated way) and data visualization tools help to discover, behind complex financial figures, some important hidden insights. Finally, several businesses use crowdsourcing initiatives to identify potential M&A targets.
Meanwhile, a new class of software can be applied directly to the core M&A activities (target research, valuation and post-merger integration), as well as addressing the so-called soft disciplines (e.g. employees’ engagement and corporate culture enhancement) that once seemed outside the scope of technology.
These activities are now more efficient thanks to the use of digital tools (often sponsored by external consultants) able to automate and digitally enable the core M&A processes.
Targets Scouting Tools can literally narrow down the list of potential targets based on selection criteria (defined during by the acquisition strategy) and speed the approach and negotiation phases. During the screening activity, the tools collect data of potential targets coming from external sources; it analyses industry trends, growth paths, and financials with the purpose of shortlisting the most interesting targets. An interesting function is represented by “simulators of acquisition scenarios” enhancing proficient discussions on growth pathways.
Emerging Tech Radar (like Graph Analytics) can support this phase thanks to Graph analytics algorithms (useful to read and interpret graphs). In particular Graph analytics algorithms can help to perform centrality analysis on a big group of potential targets.
NLP (Natural Language Processing) as part of AI can help in processing, understanding and producing a huge amount of data; it can work with huge amounts of textual data, synthesizing key information or analysing texts that include several opinions on target companies.
Semantic Analysis can have a strong application on the selection and shortlisting of target companies for M&A. This can happen by comparing a long list of companies (from several data sources) with the keywords indicated in the M&A selection criteria, or by recognizing (e.g. with grammatical modelling) specific businesses competencies. The reliability of the information is confirmed by the semantic analysis tool (cross-referencing the outcome with information already online).
Digital Ecosystem Scouting is a technology used to enhance target screening (data incorporated is coming from external sources) and to narrow down the targets of a potential acquisition. It’s useful to analyze industry trends and compare targets data (growth, financials etc.) based on selection criteria identified by the acquisition strategy. This can really help the company to quickly progress to discussion with the shortlisted targets, based also on simulations of acquisition scenarios (focused on growth trends and potential synergies).
Project management tools can easily, in complex transactions, help in coordinating the dependencies between the huge amount of activities and milestones completed by several teams. In particular, Data visualization tools are able to identify critical milestones, by combining several work plans and highlighting information on key risks, issues and dependencies. These tools are in part supported by a database of similar roadmaps in the industry that help the quick identification and management of the interdependencies. Once identified these interdependencies, the tool can also help project managers in the analysis of relevant gaps and elaboration of mitigation plans to address them.
Organizational Design digital tools allow the project leaders to draw (with a logical approach) the future post-integration organization leveraging on key talents critical for this process. The workforce alignment (based on post-integration goals) is facilitated by using internal data and industry benchmarks finalized to creating custom organizations and cost models. In addition, the new organization will impact also the future company culture.
Purchase Accounting tools can simplify this complex process by aggregating data and reducing errors and processing time for journal entries (including documentation), calculating automatic periodic adjustments (periodic purchase price, deferred taxes, goodwill and currency translation) and automating the error-checking activities.
Divestiture financials processing tools help to map the main drivers of the business through the elaboration of historical financials that are automatically adjusted. In this way, the time to close (from data acquisition to audit) is dramatically reduced. The selection of the appropriate M&A tool should be done in a fast, efficient (in term quantity, accuracy and reliability of the insights produced) and less expensive way; in particular, the tool should be able to fit into the company strategic approach to execution, enhancing collaboration, decreasing manual activities and finally shouldn’t pose any security concern.
One of the most important phases of M&A is Due Diligence since the outcome of this activity depends on the success of the deal, the negotiation and the integration phase.
With the use of Digital Technologies, the due diligence time can be reduced by 30- 90%. Business applications based on Artificial intelligence and cognitive computing could represent a great resource able to analyze data during due diligence and to understand the connection among all the data elements. After identifying the main threads in due diligence, systems are able to reduce time and overheads in the phases of gathering, processing and presenting data.
The adoption of AI during an M&A process can really take the emotions out of the process and help both buyer and seller willing to transparently share the info, to avoid risks and discover new opportunities. The Legal area is not the only one to benefit from Digital Technologies in Due Diligence. Other areas can be strongly interested, like Human resources, Finance, Product R&D engineering, Sales and Marketing, Asset Management (uncovering asset reporting discrepancies potentially missed), Real Estate and Operations. Digital support is fundamental also in international M&A transactions where multiple languages are involved.
by Prof. Paolo Bongarzoni
PhD Strategic Management & Economics – Vice Dean, Business Professor