Company Culture Is Barrier to Adoption in UK, and Cyber Security Concerns Are Most Common Issue Uncovered by Due Diligence
Dealmakers in Europe, Middle East and Africa (EMEA) lag their peers in other regions when it comes to adopting mergers and acquisition (M&A) processes that are digitally mature and technologically sophisticated. However, like most of their peers, they do believe new technologies will shorten the time it takes to complete due diligence, the most time-consuming phase of M&A. This is according to The New State of M&A, a report from Datasite®, a leading cloud-based technology provider for the M&A industry, and Euromoney Thought Leadership Consulting, a leading source of research and content for global business leaders.
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Using the right technology to manage the M&A process is critical for companies to generate efficiencies and achieve financial targets and revenue growth.
The report, which is based on a survey of over 2,200 M&A practitioners from corporations, private equity firms, investments banks, law and professional services firms across the Americas, EMEA and Asia Pacific (APAC) on the current state and outlook for M&A, shows that 67% of EMEA dealmakers say the M&A process at their company will have a high level of digital maturity and technological sophistication by 2025, while 60% say the same of the M&A process industry-wide. This compares with 77% of Americas dealmakers who predict the M&A process at their company will have a high level of digital maturity and technological sophistication by 2025 and 71% who say the same of the M&A process industry-wide. In APAC, only 43% of dealmakers say the M&A process at their company will have a high level of digital maturity and technological sophistication by 2025 but 72% say the same of the M&A process industry-wide.
“Using the right technology to manage the M&A process is critical for companies to generate efficiencies and achieve financial targets and revenue growth,” said Merlin Piscitelli, Chief Revenue Officer for Datasite, EMEA. “The speed at which businesses are able to respond and adapt is critical to their ability to survive and thrive. This becomes particularly important, given the risks posed on the global market by the COVID-19 crisis. Having the right tools and processes can mean the difference between M&A success and failure.”
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EMEA dealmakers say there are several factors holding them back from adopting new M&A processes and tools, including financial or investment constraints; data security and privacy issues; and integration challenges with existing systems and tools. According to the report, company culture is also a barrier, especially at companies in the UK, France and central and eastern Europe.
Still, in the next five years, dealmakers in EMEA do see new technologies such as artificial intelligence transforming the mergers and acquisitions (M&A) process by decreasing the time it takes to perform due diligence. Of the 860 EMEA-based M&A practitioners surveyed, 64% believe due diligence will take less than one month by 2025. In the UK, this sentiment was even more pronounced as 71% of dealmakers there say they expect due diligence to take less than one month by 2025. Today, the process takes one to three months to complete a deal in EMEA and the Americas, and between three to six months in APAC, according to the report.
“New technologies, such as AI and machine learning, are making the entire M&A process, not just due diligence, faster and less labor-intensive,” said Piscitelli. “These new capabilities are valuable in managing all corporate actions, including M&A, initial public offerings and restructurings, which are increasingly taking place due to the market downturn brought on by COVID-19.”
In addition to new technologies enabling more robust data management and communications, analytics and reporting, and the administration of multiple scenario analyses or financial modelling, EMEA dealmakers say new technologies will enhance the security around the M&A end-to-end process. This is a particular concern in the UK, where 54% of dealmakers – the highest percentage across EMEA – say data or cyber security concerns are the most common issue uncovered in due diligence that causes the withdrawal from a deal. This compares to 36% of global respondents who said cyber security was the most common issue exposed by due diligence.
The importance of environmental, social and governance criteria as a consideration in M&A due diligence is another area where EMEA dealmakers diverge from their peers. While most dealmakers in all three regions say ESG criteria is an important or very important consideration, notably fewer EMEA dealmakers currently say this compared to their peers in the Americas and APAC.
Other key findings from the report include:
- 39% of EMEA practitioners say incomplete or inaccurate deal documents and information is the factor that slows due diligence the most.
- 47% of EMEA dealmakers say a lack of insights on buyer behavior across mandates is the most challenging aspect of marketing an asset for sale.
- 93% of EMEA practitioners say the ability to load large volumes of data quickly is most useful in a restructuring situation.
- 60% of EMEA practitioners say data privacy regulation (e.g. EU’s GDPR) will be a very important consideration in M&A due diligence in five years’ time, up from 9% today.
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