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Boosting M&A success rates in a post-COVID world means transforming our approach to due diligence

By Graham Mills and David Holden-White, Co-Founders and Joint Managing Directors of techspert.io

This is a challenging time for dealmakers everywhere. M&A deal volumes have plummeted during the pandemic, with more than half of C-level executives admitting that activity has been paused pending further market assessment. The financial sector is no exception. As a new report from Deloitte explains, “The drivers that were once favourable for continued mergers and acquisitions in the banking and capital markets sector have been overshadowed by the recent market turmoil and uncertainty caused by COVID-19.”

As the report hints, prior to COVID-19, global M&A activity levels were reaching all-time highs, buoyed by ongoing economic uncertainty and trade tensions. It is highly likely that, as the pandemic starts to recede, the financial sector will see a return to a more robust level of M&A activity. Of course, one might be forgiven for asking why this is the case, given that research shows 83% of mergers do not boost shareholder return and roughly two thirds lose value on the stock market. These statistics are damning, particularly because they refer to the pre-COVID operating environment which, frankly, was a much easier place to do business.

While M&As can go wrong for many different reasons, one of the most regularly cited is the inability to get in-depth and accurate upfront information to inform and de-risk critical decisions. Again, this is a problem that appears especially alarming when considering the social distancing, travel and workplace restrictions imposed by nations all over the world.

Boosting M&A success rates in a post-COVID world means transforming our approach to due diligence 2

The limitations of traditional networks

But it’s not just about shortcomings in how we interact with those on the other side of the M&A. Assessments about business performance, growth forecasts, customer durability and company valuation, are all incredibly difficult in the current turmoil.

Conducting due diligence has never been more important and yet, arguably, it has never been more challenging. How do you determine a target acquisition’s post-COVID ‘bouncebackability’? Who can accurately assess the long-term impact of changed customer behaviours, economic damage or COVID-related government policies?

At such times, businesses rightly turn to the experts for advice, deploying their own internal M&A teams to seek out appropriate sources of market insight and employing expensive management consultancies and financial institutions to support them along the way.

The problem is that, constrained by time pressures and the limitations of human-led market research, even the most resource-intensive M&A teams struggle to access the best expertise at the moments they require it the most. Instead, they are forced to search among narrow, closed-loop professional networks to identify the best of the advisors they already know. Even the most established professional network is still essentially a black book of contacts, rather than an independently verified list of the most relevant and knowledgeable experts for the subject in question.

What if these businesses could go beyond who they know, to find who they need, in order to inform whether an M&A ought to be pursued?

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Transforming the world of due diligence

Accessing a broader spectrum of expertise requires a faster, more intelligent and more precise approach to due diligence. In short, it requires artificial intelligence (AI) technology, which is capable of making experts easier to identify, by analysing and intelligently assimilating millions of data points to pinpoint and profile the people who are truly leading their respective fields in different corners of the world.

In contrast to conventional knowledge sharing systems – which can only tell you if a person was, at some point, identified (or self-identified) as an expert on a topic – AI tools are far better equipped to spot real-time change in status or reputation. Furthermore, automating the filtering process helps solve the problem of confidentiality, ensuring that the request for consultation is not shared far and wide.

Going forwards, if we are to see any sort of improvement in the post-M&A business success rates, the onus must be on organisations to improve their methods of due diligence and gain access to a wider range of expertise prior to taking the plunge. As COVID-19 continues to reshape our world and challenge our existing conventions, now is the perfect time to break with the approaches of old and embrace AI as the pathway to smarter, strategic business decision-making.

Graham Mills and David Holden-White are co-founders and joint Managing Directors of techspert.io, an AI technology innovator that specialises in connecting businesses directly to the source of technical and market insights.

Prior to founding techspert.io, Graham held venture capital roles with Johnson & Johnson Innovation and Seroba Life Sciences, and David held IP law and biotechnology positions at Psyomics and Carpmaels & Ransford.

 

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