Get connected: Keeping up with the digitalisation of due diligence

Getconnected:Keepingupwiththedigitalisationofduediligence admincontrol.com Contents Introduction3 Awholenewworld5 Suiteofsolutions8 Virtualdatarooms12 Perfectpartners14 Outlook19 Methodology InQ22022,Mergermarketsurveyed100seniorexecutivestogaininsightsintothedigitalisationofduediligence.Therespondentscomprised25investmentbanks,25lawfirmsand50privateequity(PE)firms.AllareheadquarteredinEurope(includingtheUK)andwererecentlyinvolvedonthebuysideofanM&Adeal.Allresponsesareanonymous,andresultsarepresentedinaggregate. Introduction Keyfindings: 1.Almostallrespondents(94%)saythatdigitaltechnologiesareimportanttohowtheymanageM&Aduediligence,including52%whodescribethemasveryimportant. 2.ThesinglemostimportanttechnologytheyuseduringM&Aduediligence,accordingto29%ofrespondents,is‘BigData’analytics,followedcloselybyVDRs(26%). 3.Thetwobiggestobstaclestointegratinginnovativetechnologysolutionsintorespondents’M&Aduediligencepracticesaregettingsufficientlycomfortablewiththenewtechnology(24%)andinsufficientin-housetechnologyexpertise(18%). 4.Halfofallrespondentssaytheymostlyoutsourcetheirduediligenceprocessesandrelatedtechnologies,andafurther30%revealthattheyentirelyoutsourcetheseprocesses. 5.Themostimportantqualitiesthatrespondentslookforintheirthird-partycollaboratorsarecutting-edgetechnology(56%oftop-threevotes)andavailability(54%oftop-threevotes). Thepasttwoyearshavereshapedthepracticalitiesofdealmakingforthebetter.ThechallengesoftransactingremotelyduringtheCOVID-19pandemicacceleratedtheadoptionoftechnologiesthatenablebothswifterandmorejudiciousdealprocesses. Ahigherdegreeofautomationhasmitigatedpreviouslymanualtasks,improvedworkflowsandreducedcosts. Today,Europeandealmakershavemoretothinkaboutthaneverbefore.Fromunderstandingthedistortiveeffectofthepandemiconbusiness,tosupplychainperformanceand thetighteningofenvironmental,social&governance(ESG)regulations,throughtonavigatingchangingsanctionsconnectedtoRussia’sinvasionofUkraine. Consequently,digitalapplicationsarebecomingfurtherintegratedintotheday-to-dayworkingsofduediligence.Mostdealmakerswhoembracedthesetoolsduringthepandemichavecommittedtothemforthelongterm,havingcometodependonthebenefitsoffaster,highlyanalyticaltech-enabledM&Atransactionsthatleverageadvancedvirtualdatarooms(VDRs)andanalytics. Forthisstudy,thesecondinourseriesofnewslettersincollaborationwithMergermarket,wesurveyed100seniordealmakingexecutivesacrossEuropetogainasenseofhowtheyviewthebenefitsofdigitalisedduediligence,theirplansforfurtheradoptionandthechallengestheyhavecomeupagainstsofar. Getconnected:Keepingupwiththedigitalisationofduediligence3 Awholenewworld ThepandemicsuperchargedthedigitalisationofM&A,andorganisationsthatinvestedinandupgradedtheirduediligencetechnologysolutionsareenjoyingtherewards Nowmorethanever,digitaltechnologiesareacriticalingredientinM&Aduediligence.Artificialintelligence(AI)isbeingintegratedintoVDRstoreviewlargevolumesofdocumentsrapidlyin asecure,access-managedonlineenvironment.Thesetoolscanbeappliedinalmostlimitlesswaysandarenotreservedforfoundationallegalorfinancialdiligenceprocesses. Softwarecanbeusedtoanalyseeverythingfromabusiness’scybersecuritystandardsandassetsthroughtotheircompliancewithshiftingregulations,orbenchmarking againstemergingESGindicators.Buildinganaccuratepictureofwhatistrulyhappeningwithinatargetcompanyhasnever beenmoreimportantinlightoftoday’smacroeconomicenvironment.Companiesarehavingtomanagefrayedvaluechainsandunprecedentedsupply/demandimbalances, inflationandrisingfinancingcostsasinterestratesrise.Allofthisisdestabilisingandmakesitmoredifficultforinvestorstodevelopaclearpictureofacompany’sperformance. AsMariNygård,headofdataroomsatAdmincontrol,explains,digitaldiligencetoolshelpbidderstomakeswifter,moreconfidentdecisions:“Asdecision-makersarebecomingmoreawareoftherisingcyberrisks,theyarealsogettingmoreconsciousaboutchoosingsolutionswithembeddedsecuritybydesign,notonlybeingsecurebutalsopromotingsecurepractices.Theassurancethattheirdataisprotectedateverystepgivesourcustomerspeaceofmind.” Thisisborneoutinourresearch.Almostallrespondents(94%)saythesetechnologiesareimportanttothewayinwhichtheir HowimportantaredigitaltechnologiestothewayinwhichyourorganisationmanagesM&Aduediligence?(Selectone) Total 6% 42% 52% 60% 40% Investmentbank 0% 8% 40% 52% Lawfirm Privateequityfirm 8% 34% 58% VeryimportantImportantNeitherimportantnorunimportant Getconnected:Keepingupwiththedigitalisationofduediligence5 DuringtheCOVID-19pandemic,didyouexpandthetechnologyresourcesthatyouuseduringM&Aduediligence?(Selectone) 53% 47% Yes No organisationsmanagedealduediligence,including52%whodescribethemasveryimportant.Thepandemichashadaclearandmeaningfulimpactonthewillingnesstoadoptthesetools,asinvestorsequippedthemselvesfortheremotedealmakingenvironmentthatwasforceduponthemduring2020and2021. “TheCOVID-19challengescontinuedforaprolongedperiodoftime.Therewerefewwaystocommutetothetarget’slocationandconductphysicalinspections.Technologyresourceswereveryuseful,”commentsthemanagingdir