Digitization marks a fundamental change for M&A, not only internally, in its processes, but far beyond. In this article, we will consider how Data Room technologies influence M&A analytics.
M&A in the light of digitization
Digitization is now creating new forms of collaboration between companies. These include, for example, digital ecosystems, network-like networks with the inclusion of completely new data-driven service providers and controllers, as well as a completely different quality of inclusion of customers in the value chain.Company acquisitions and mergers not only get “new competition”, but also completely new driving forces.
The development of companies at the expense of own funds and by creating new production facilities is a long-term process, the implementation of which, as a rule, is ineffective, taking into account the time factor and the rapid intensification of competition. A faster and more effective strategy of the current stage of development is the merger and acquisition (M&A) of existing enterprises, which allows the most fully to use the created production potential, to attract borrowed funds, to realize significant synergistic effects and advantages of large economic objects.
Virtual Data Room: how to automate the M&A deals?
The initial stage of the M&A process s is due diligence. One of the main objectives of financial due diligence is to provide the potential buyer of a target company with the highest level of transparency about the company’s performance and the value drivers. To achieve this goal, analyzes of a wide range of financial documents are necessary.An integral part of today’s financial due diligence is important commercial analyzes as well as the inclusion of planning calculations. The use of modern data & analytics software solutions today enables a new level of depth of analysis. One such software that is widely used in most business structures is Virtual Data Room.
In state-of-the-art data analysis, we collect the transaction-relevant raw data (e.g. invoices) from the target company’s ERP system and structure it for (client) individual data analysis to identify the value drivers in the target company. The (most important) results flow into the due diligence report, all analysis details are made available in the form of a factbook (for further detailed evaluation). In addition to this, the analysis results can also be presented in the form of a dashboard. With such a robust database, all things being equal, the risk of information asymmetries between buyer and seller is reduced.
How does the software work?
The use of Data Rooms also significantly improves flexibility. The unfiltered and disaggregated raw data enable further analyzes or aggregation levels at any time (e.g. according to customers with the strongest sales growth, product groups with a falling gross profit margin, regions with the highest volume effect, etc.). Standardized workflows enable us to answer short-term inquiries immediately at any time.
Modern virtual data room providers offer the possibility of the controlled and monitored publication of all data relevant to the purchase verification. The technology is widely introduced, accepted in the market, and both robust and comfortable in daily use.
The scope of services of digital Data Rooms is being massively expanded (by some providers). The main innovations are:
- Translations from and into different languages;
- Workflow management for the Q&A;
- Partially automated, machine-aided preparation of Red Flag Due Diligence (Findings Management);
- Automated allocation of (unsorted) data to Data Room indices.