17 January 2023

M&A technology to accelerate your transactions

Manually going through thousands of contracts requires significant time and resources, two things that are usually not available in a merger or acquisition. Could artificial intelligence be the solution?

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The well-known saying "the devil is in the details" is very important for mergers and acquisitions (M&A). This is because, in our experience, approximately half of all corporate agreements contain terms that restrict transferability. Reviewing key supplier contracts is a common task performed as part of the due diligence process. In the past, this process was done manually: consultants would review documents, search for supplier contracts and record key provisions such as renewal dates and fixed fee amounts. While pricing information in contracts is often redacted or deleted, transferability provisions have been collected and summarized manually by due diligence teams for years.

But those days may be over. One of the new technologies used in the due diligence process is artificial intelligence (AI). AI algorithms can be used to quickly analyse large amounts of data, such as financial statements and legal documents. They enable the rapid identification and extraction of key provisions by reviewing thousands of contracts and other documents in just a few weeks. This can help identify potential risks that might not be visible to human analysts.

Another new technology being used in due diligence is blockchain. Blockchain is a digital database that can be used to record and verify transactions in a secure and transparent manner. It can be useful in the due diligence process because it can provide an accurate and tamper-proof record of financial transactions and ownership. Blockchain adds value when it comes to certifying documentation, but has little advantage in practical terms as this information still needs to be analysed by the acquirer.

In addition, virtual and augmented reality technologies may be used in the future, for example to inspect real estate and other physical assets. This will allow investors to get a better idea of the assets under consideration without having to travel to the location in person. Drones are being used for a similar purpose. They can give clients a bird's eye view of the companies they are bidding for, giving them virtual tours of everything from seaports and railways to chemical factories, warehouses and wholesalers. Last but not least, cloud computing is being used to streamline the due diligence process. By storing and sharing data in the cloud, multiple parties can access and review information from any location, making the entire process faster and more efficient.

By using the latest cognitive technologies, companies can save resources and benefit from a more accurate and efficient method of data analysis. It's a next-generation approach to closing deals: combining strategy with technology.

"New technologies in M&A transactions are evolving at a tremendous pace, and their use significantly reduces the time spent on data analysis and improves its quality. I still occasionally hear some partners reminisce about the days when all the data was only physically available: all the advisors would converge on a location, and wait in line for the one file that had the financial statements in it. Today, analytics tools help us process hundreds of thousands of rows of data within minutes, with outputs such as dashboards that we can share with clients. That's why it's important to choose an experienced advisor who has all these tools at their disposal right at the beginning of the journey."

-Magdalena Martin, ACA – Assistant Director, Financial Advisory

"But it doesn't stop there - a few years ago virtual reality was more associated with gaming, but now tools are being developed for use in M&A. Artificial intelligence will also have enormous potential in the future, whether in the form of publicly available platforms such as ChatGPT, in which Microsoft recently invested, or internally developed tools. Experienced advisers need to keep an eye on these technologies as they have huge potential to make their work more efficient and provide a better service to their clients."

-Michal Kokoř, CFA - Manager, Financial Advisory