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Technology has had a lasting impact on how both buy-side and sell-side actors go about M&A activity. With the emergence of M&A software and digital tools, deal origination and due diligence processes have been streamlined, enabling firms to leverage technology like never before.
As M&A activity escalates across the globe, it is increasingly important to integrate innovative capabilities into every firm’s M&A strategy. By embracing third-party software companies and incorporating their resources into due diligence and deal management activities, forward-thinking financial services companies are uncovering new opportunities across industries, giving them an edge over the competition.
These business software providers offer firms two major benefits:
- Provide targeted information to enhance the ability of firms to uncover potential deals
- Enhance the procedural efficacy and management of these deals to improve technical due diligence activities after deal origination
Here we will look at some of the key processes that make up M&A due diligence open source software for the buyer and then review important ways companies like SourceScrub are integrating technology to better manage these activities moving into the new decade.
M&A Due Diligence and Management
Conducting due diligence prior to the completion of a deal is a requirement for every firm operating in the M&A market. The lifecycle of an M&A transaction typically includes three stages:
- Pre-Deal – the deal origination stage which includes uncovering potential transactions and applying the firm’s broad M&A strategy to target companies to determine whether they are a good fit for the portfolio.
- Pre-Announcement – the period when a firm conducts due diligence after the target company has been initially screened. During this period, a firm will decide whether to go ahead with the deal.
- Post-Announcement – Once the deal has been announced, the firm will continue the process of integrating the target company into its portfolio and begin implementing its plan for the company.
M&A deal management software and M&A due diligence software are especially useful during the first and second stage of the M&A lifecycle. During this period, firms can leverage private equity deal sourcing platforms to enhance deal origination strategies and effectively manage their deal pipeline.
Pre-Deal M&A Management
In the pre-deal stage of an M&A transaction, firms are generally looking at a host of potential companies. During this period, deal origination management is especially important.
Deal origination is the process by which a firm goes about uncovering investment opportunities in the market and is usually accomplished through two main approaches.
- The traditional approach where a firm utilizes its network of clients and intermediaries to find leads that are available in the market
- The digital approach that employs technology firms to match potential leads with the firm’s wider strategy through online platforms
Because most firms work transnationally, there are a large number of potential purchases that could fit in with their wider M&A strategy and sifting through these leads can be a hazardous experience for any firm, regardless of size. For this reason, the online approach has become especially useful in recent years.
There are a few specific dynamics that firms consider during the deal origination stage of the M&A process.
- Do the leads fit in with their target market and geographic focus?
- How do leads compare to other companies in their deal pipeline?
- Are the initial financial considerations in line with the firm’s overall M&A strategy?
When employing a traditional approach to the deal origination process, merger and acquisition firms must continuously leverage their clients and intermediaries to determine whether a lead is worth considering further. The process can be burdensome for any firm operating in the merger and acquisition space, which has led to most firms adopting a mixed approach that also includes online methods.
Online deal origination software expedites the deal origination process by applying intelligent matching and algorithmic data to uncover appropriate leads that fit into a firm’s M&A strategy and target market.
It also enables a company to quickly prepare for the due diligence process before making any decision to move forward, by converging all of the data into the firm’s CRM.
Pre-Announcement M&A Management
Once a firm has concluded that a lead is worth considering through deal origination and initial screening, it will begin the due diligence process. Due diligence is an extensive procedure that requires the firm to analyze the company from top to bottom before going ahead with a deal.
The firm will look at various factors to determine if they should move forward, including the following.
- Financial matters – the firm will audit the company’s financial statements, analyze its margins and debt outlook, create projection models, and look at whether it retains the resources to continue with a deal
- IP and technology – when determining if a company is a good fit for an acquisition, firms must make considerations about a company’s patents, trademarks, secrets, and product service offering
- Synergies – a major determination for any M&A firm is whether the potential purchase fits in with its strategic approach and provides a beneficial offering to the wider portfolio
- Customer Analysis – the firm will consider the wider market and whether there is any risk to its customer base moving forward
- Management and Employees – a complete analysis of the company’s human capital is a major part of the due diligence process, including an assessment of compensation, benefits, management structure, policies, and of course the effectiveness of the executive leadership
- Legal and Regulatory Matters – any current or potential litigation against the company, along with regulatory considerations for both the deal and the continued operation of the company are closely monitored
The due diligence process requires the analysis of all these factors and the management of an extensive amount of data. Because of the complexity associated with the process, firms are increasingly leveraging third-party software companies to help manage this data and integrate it into the firm’s due diligence process.
M&A Due Diligence Software
Software due diligence tools are having a major effect on how M&A firms approach both the deal origination and due diligence process.
Not only can a third-party software provider increase the efficacy of uncovering and organizing potential leads, they also can integrate all of the data gathered during the due diligence process into an accessible platform in line with the firm’s existing network.
Because most M&A firms are working on various deals simultaneously, retaining a streamlined software platform to organize these processes has become increasingly important.
Technical due diligence:
- Enables firms to access more deals by leveraging third-party information across the globe to uncover leads that would otherwise go unnoticed
- Stimulates a more efficient approach to deal sourcing, as firms are no longer reliant on relationships with clients and intermediaries to source deals
- Allows for the comparison of potential acquisitions to other companies in the sector online with limited research required
- Simplifies the process of making initial valuations based on existing data provided by software providers
- Focuses the firms M&A strategy into a user-friendly format that can be accessed by any relevant employee
- Gathers all of the data during the deal origination process so that it can be applied to due diligence if the process moves forward
Because of these benefits, more and more M&A-focused firms are working with third-party software providers to enhance both the deal origination and due diligence process, while moving away from traditional approaches that limit the firm.
The Best Source for Due Diligence Process
While there are a wealth of software providers currently targeting private equity firms, SourceScrub offers its clients unmatched deal origination software tools that revolutionize the due diligence process.
- TAM Analysis enables firms to accurately define their target market and go-to-market strategy during deal origination by providing focused data on potential leads across industries and geographies.
- Accessing private company information no longer requires extensive research as all the data is converged into an accessible platform.
- Investment opportunities and potential acquiring leads can be tracked at ease enhancing sourcing efforts through the organization of targets into a firm’s existing CRM network.
- Deal flow processes are simplified by converging data from the due diligence process across deals increasing efficiency for all those involved.
The complexities associated with managing such a large amount of information make it increasingly necessary for firms operating in the M&A space to utilize software due diligence tools.
SourceScrub enables firms to manage both their deal origination and due diligence process by organizing all the firm’s data into one accessible platform. This streamlines efficiencies, enhances deal origination, and consolidates data.
Private Equity Workflow Enhanced
As the M&A market continues to spike in competition, the process of sourcing and managing deals has never been more important. Traditional approaches are quickly becoming insufficient for firms that hope to keep up with the competitive balance in the sector, forcing actors across the market to adopt new methods for M&A activities.
M&A deal management software can have a major effect on any firm’s approach to deal sourcing and due diligence to both private companies and public firms. Not only can it empower a firm with the necessary tools to discover potential acquisitions that would have likely been missed using traditional methods, but it can also centralize its M&A strategy into an accessible platform for the entire team.
If your firm is interested in adopting a revolutionary online deal management software platform, contact SourceScrub now for a free demo!
- Corporate Finance Institute. Deal Origination. https://corporatefinanceinstitute.com/resources/knowledge/deals/deal-origination/
- Corporate Finance Institute. Due Diligence. https://corporatefinanceinstitute.com/resources/knowledge/deals/due-diligence-overview/
- Deloitte. M&A Due Diligence Workshop. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/Real%20Estate/us-engineering-construction-ma-due-diligence.pdf
- Forbes. 20 Key Due Diligence Activities In A Merger And Acquisition Transaction. https://www.forbes.com/sites/allbusiness/2014/12/19/20-key-due-diligence-activities-in-a-merger-and-acquisition-transaction/#372c1c684bfc
- Wall Street Mojo. Deal Origination Sourcing. https://www.wallstreetmojo.com/deal-origination-sourcing/
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