Audio Brief Transcript
Alex Clemente: Welcome to this Harvard Business Review Analytic Services audio brief recording sponsored by Datasite. This is Alex Clemente, managing director for HBR Analytics Services, and today I’m speaking with Doug Cullen, Chief Product and Strategy Officer for Datasite. Doug, thank you so much for joining us today.
Doug Cullen: It’s great to be here.
Alex Clemente: In a world of mergers and acquisitions, two aspects have always been integral to dealmaker success, speed and knowledge. Having a competitive advantage in those areas gives firms leverage in M&A deals. As M&A activity continues to rise, dealmakers find themselves needing more insights derived from data, while also seeking to improve the efficiency of the M&A process. Over the past decade, new digital technologies have increased capabilities related to data and analytics. Those capabilities are now being applied to M&A. In 2022, Datasite conducted a poll of 543 M&A executives and advisors to explore key trends affecting M&A as well as the types of transactions expected to be front and center in the next year.
The respondents in that study believe the technology is enabling sellers to be better prepared to participate in M&A transactions, as well as enabling buyers to conduct more thorough and sophisticated due diligence. At the end of last year, HBR Analytic Services published a report on the role of speed and technology in the evolution of M&A sponsored by Datasite. In that report we described how technology is helping to manage the increasing complexity of M&A, and it’s available for download on hbr.org. Doug, we’re really interested in getting your perspective. How has M&A changed in recent years and what trends have emerged, especially in how deals are getting done?
Doug Cullen: Well, Alex, new technologies are significantly impacting the way M&A deals are completed. They’re reshaping various stages of the dealmaking process, automating repetitive tasks, powering data analysis and easing processes across all phases of the deal, including pipeline management, outreach, preparation, and due diligence, improving efficiency, enabling data-driven decision making, and enhancing collaboration among stakeholders. For example, the capabilities of AI are unmatched when it comes to sifting through extensive volumes of data and content to inform decision making. In a matter of minutes as opposed to weeks, an AI engine can redefine how thousands of files are digested and organized for dealmakers, where an investment banking analyst might have spent weeks at a time analyzing, organizing, and categorizing the thousands of documents needed for review by potential investors and purchasers.
Now, AI-powered tools in a virtual data room where digital M&A documents and artifacts are securely stored can perform the jobs in seconds, simultaneously reducing human error and ensuring better regulatory compliance.
Alex Clemente: Well, that’s certainly a lot and also very encouraging. What do the internal M&A processes of the best companies look like today? What are their current best practices for M&A?
Doug Cullen: It’s a great question, Alex. Workloads for dealmakers have increased due to these challenging market events. Today’s dealmakers need to manage more with less from anywhere at any time. Having one place to manage every stage of dealmaking gives dealmakers the flexibility to better manage their costs, reduce compliance risk, and increase their productivity. The real best practices hinge off those basic tenets. The dealmakers, the deal teams are running both buy-side and sell-side transactions at the same time. Companies that utilize platforms with seamlessly connected applications that can handle every transaction type and every phase of the deal simultaneously are the ones that really are succeeding today because the utilization of one platform with these seamlessly connected applications can handle every transaction type and every phase of the deal simultaneously from sourcing to integration, meaning dealmakers can easily and quickly source their next opportunity, move through due diligence, close their deal, and secure their data for future transactions.
Alex Clemente: What are some of the technologies, you touched on AI earlier, being used in M&A today and how is it different? How is it being used differently than in the past, and what benefits is it bringing to M&A?
Doug Cullen: Yeah, in some ways I would say that some of the newer technology is taking off in helping how people really conduct M&A, and in some ways people are adhering to older classes of technology to get their work done. One of the major technologies people still leverage is Excel. I think that the organizations that are starting to embrace newer technology, really looking to transform and speed up the process of managing M&A, automating repetitive tasks, powering data analysis, and easily processing across all phases of the deals are ones that are really getting ahead. Creating repeatable deal playbooks can help and using purpose-built applications can make deal pipeline management more efficient and effective. We have pipeline tools that can help dealmakers visualize, compare, and assess various inputs and data sets, and that means that they can potentially look at targets, compare them, create key touchpoints, track their progress, what information has been reviewed, what hasn’t been reviewed. These are just some of the technologies that people are utilizing to really stay ahead and make a difference in their dealmaking.
Alex Clemente: Yeah, so it really sounds like it’s really speeding up and streamlining processes. How has due diligence changed in recent years? When companies can do it faster, which is what I think we’re saying here, if they can do it faster now than they could in the past, what should they do? For instance, what factors should they consider more deeply such as corporate culture, for example, and do that with the time that they’re now saving?
Doug Cullen: Great question, Alex. I mean, I think dealmakers are always trying to balance two objectives at the same time. You’re always trying to do your work in a cost-effective way, and then ultimately delivering the long-term business value that is created when you do transformational technology acquisitions or divestitures. Effective due diligence is back in style now and really making sure you have the agility around how you work from the beginning of the deal to the end of the deal and really running very, very tight processes. Weekly cost of due diligence is costing companies around a hundred thousand dollars per week. These choppier market conditions, rising interest rates, and challenging financing conditions have resulted in dealmakers spending more time preparing deals and conducting due diligence than ever. In fact, due diligence times have lengthened by a median of 24 days since 2021.
I think pre-2022 a race was on to compete due diligence as quickly as possible. Now the pendulum has swung in the other direction and taking time pays off. M&A deals with longer prep and due diligence times on Datasite are more likely to report a successful outcome. At the same time, emerging technologies, including artificial intelligence, are reducing many of the manual and time-consuming processes of deal management, such as organizing and categorizing folders for data room. Using AI to analyze data is also helping to improve valuations. Analytics tools can help sellers spot trends regarding the company’s products, customers, or its sector in particular, and provide regional insights previously unavailable. While data secured from these tools can help buyers best position themselves, including their strengths and weaknesses, freeing up dealmakers’ energy for other tasks such as strategic and cultural fit and ESG priorities.
Alex Clemente: Yeah, I’m glad you touched on that. It sounds like change is happening quickly and very positive, but as we look ahead, how is M&A likely to keep changing in the years ahead? What trends, as you just touched on, ESG, which is Environment, Society, and Governance, or technology such as AI, or other factors such as regulation, how will they become more prominent in how M&A deals get done?
Doug Cullen: Yeah, as we’re reading every day, generative AI and other emerging technologies will continue to be a catalyst for dealmaking activity over the next few years, including from companies looking to acquire AI technologies, to optimize workflows, to leveraging tools to increase M&A efficiency. For example, generative AI can make M&A search easy to help dealmakers get better and faster deal results for pitches. Right now, analysts and associates use many tools to gather buyer information. These searches can also turn up irrelevant information and data and take a lot of time. AI-powered research engine trained on M&A can use natural language processing to assess M&A deals based on the underlying asset descriptions, geography, and other deal-specific insights. With that information in hand, dealmakers can then identify non-obvious buyers, comparable deal data, buyer recommendations, and even validate their own research.
With regards to regulation, I’m not sure anyone really knows where that’s heading with AI, but generally their stricter antitrust regulations may lead to more rigorous reviews, longer approval processes, and potential divestitures to address competitive concerns.
Alex Clemente: I guess we’ll always have to stay tuned on regulation. One more question. We’ve been talking about a lot of the great attributes of technology in M&A. How is technology helping companies to de-risk their growth strategies?
Doug Cullen: Alex, I think against the backdrop of rising costs, recessionary pressures influencing consumer behavior, and cutbacks, business leaders are focusing on where the business risk and opportunity lie, while also keeping an eye on investments and capabilities that enhance their resilience. This investment could mean something as big as a new partnership or an acquisition. Companies are continuing to invest in acquiring technology as they pursue digital transformations. A key aspect of this transformation is to focus on automation, including using emerging technologies that can connect and analyze data and automate tasks to improve efficiency. The idea being that by leveraging data from across the enterprise, companies can create more efficiency and position themselves for success while keeping an eye on costs and the bottom line.
Alex Clemente: That’s certainly all really beneficial and a very compelling answer on the role of technology in M&A in close to our program. I’ve been speaking with Doug Cullen, who’s the Chief Product and Strategy Officer for Datasite. Doug, thank you for your insightful and your instructive comments today, and also many thanks to all of our listeners for tuning in. The producer of today’s program is Samantha Barry and our technology partner is ON24. Thanks to them. A very big thank you to Datasite for making today’s discussion possible. This concludes our program. Have a great day.