The number of M&A (mergers and acquisitions) deals have been steadily growing since 2010. And with it, the contribution of private equity firms: Their share in mergers and acquisition deals has grown from 1/3 in 2017 to 1/2 in 2022.
Private equity firms must digitally transform their M&A processes to get ahead of the investment curve. This article explores how M&A automation improves the efficiency of mergers.
What are mergers and acquisitions?
Mergers and acquisitions (M&A) are when two entities become one. They are used in horizontal and vertical market integrations. Supply-side benefits include of mergers and acquisitions include:
- Economies of scale & scope
- Bigger market share
- Access to talents
- Resource and plants consolidation
- Costs reduction
What are the challenges in mergers and acquisitions?
The average time it took to close a deal in 2019 was 38 days, up 31% from in 2010. For midsize and large deals, the time was 106 and 279 days respectively.
M&A deals are subject to heavy antitrust and regulatory regulations. McKinsey has found that between 2013 and 2020, 14% of M&A negotiations, worth over $1B valuation, broke over regulatory/antitrust rulings (Figure 1).
3. Incomplete due diligence
Fraud is not uncommon in big M&A deals. In 2012, for instance, HP acquired a firm 90% more than what it was worth, because the company had cooked its books. The due diligence process is tricky but is the bedrock of a successful merger.
Whether its data or resource consolidations, merging resources can be complex. For instance, employee records might be lost in the migration process. Implication could be employee payroll delays.
5. Customer service inconsistencies
Customer care services might negatively be affected due to personnel shifts. Consistent customer service to clients is important (any stats?).
6. Organizational uncertainty
Related to customer care inconsistencies is organizational uncertainties. If a robust hierarchical contingency plan is not in place, mergers and acquisitions could result in operational halts.
What are the use cases of merger & acquisition (M&A) automation?
Pre M&A activities to be automated include:
1. Deal sourcing
If private equity firms do not know a business or an industry to invest in, they can use deal sourcing solutions (give an example from private equity automation article). The software takes in the investors’ risk appetite, interested industry, and provides examples.
2. Due diligence process
Alternative data coming from different sources, such as IoT devices (L), social media sentiment, satellites, etc., can support the due diligence process. Organizations can better assess the legitimacy of the company they are merging with during the due diligence phase.
Or companies can run automated background checks on the executives of the target company, with public data, to better know who they will be dealing with. Additionally, they can run background check on the target company’s employees to familiarize themselves with the new workforce.
Learn more about:
3. Contract generation
Contract automation technology can automatically create contracts once the negotiation is done. The benefit of automating contract generation is that the repetitive work, of filling the counter-party’s info and the like, will be delegated to bots. However, these M&A contracts could be about billions of dollars value and they are not good tasks to completely automate. Humans would be reading every line of the contract and machines would be producing drafts of commonly repeated contract sections.
After the deal is concluded, PMI starts:
4. Post Merger Integration (PMI)
Post merger integration is about unifying resources. Companies can use dedicated automated tools to handle processes related to post merger integration.
For example, assets of the acquiring and the target company should be unified. An asset management software can help companies reduce human errors in this use case and streamline data transformation.
Or when it comes to intellectual property (IP), the acquired company can use an automated intellectual property software to manage, review, and renew the target company’s IPs.
5. Data migration automation
Data migration tools, leveraging workload automation and job schedulers, can automate the data migration process. These automated tools can eliminate the manual tasks associated with ETL (Extract, Transform, Load) of data from different software into a singular data base.
6. Onboarding & off-boarding
- Restricting outgoing employees’ access
- Scheduling orientation interviews with department heads
- Automatically adding/removing employees from payroll
During and after PMI, the new buyers will be looking for ways to bring more efficiency into the company
7. Customer service
Companies that leverage chatbots in their front office tasks, such as customer service, can keep their services consistent. Withstanding any operational or organizational changes, chatbots can still answer customers questions and address their enquiries. IT teams can reprogram its knowledge base to reflect the latest company information.
8. Employee communication
Digital workers leverage RPA (robotic process automation), NLP (Natural Language Processing), computer vision, and other cognitive automated tools. They can be used to improve employee productivity by giving them easy access to key documents or ask key questions via digital workers.
9. Process optimization
After a merger and acquisition, the company might want to assess and optimize the legacy processes, workflows, and systems of the target company. Process mining and process mapping technology can give organizations an as-is image of the processes. This helps in analysis and pinpointing areas and tasks that can be automated.
10. Predictive analytics
Companies can use predictive analytics technology for creating bots that do the initial analytics of the new business landscape if they merge with the target company. For instance, financial solutions have capabilities to calculate future cash flows based on current data. Or they can stress test the company’s liquidity risks by putting it in different scenarios.
For instance, a company used process mining to assess machine failures in the target company. The insights enabled them to find a solution for early conveyor belt breakdowns during post-merger integration.
For more on process automation
To learn more about process automation, read:
- AI Resume Screening: 10 Ways It Helps Hirings Managers
- 3 Types of Process Automation Tools
- Top 10 Use Cases of Service Level Agreement Automation
And if you want to invest in a process automation tool, we have a data-driven list of business process automation tools.
We will help you choose the best one:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
To stay up-to-date on B2B tech & accelerate your enterprise:Follow on
Next to Read
Your email address will not be published. All fields are required.