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The 5 Success Factors for M&A Due Diligence in 2019

By Omar Janabi, Marketing Director, EMEA at Merrill Corporation

Amid the rising complexity of M&A, the simple adage of ‘failing to prepare, then preparing to fail’ is as true today as it always has been. That is because due diligence and  the time- and resource-intensive preparation process that goes into it can ultimately define the success or failure of any M&A deal. This is why great importance is assigned to the meticulous practices and processes involved.

Thankfully, due diligence has evolved and improved, in large part, due to advances in technology and digitisation, a topic we look at in this Finextra guest post. Where before the process was frustrated by physical data rooms and huge volumes of paper documents, due diligence has rapidly moved into sophisticated, intelligent virtual data rooms, replete with digital content libraries and access to automated analytic reporting. This has led to greater speed, simplicity and security across the entire process, enabling practitioners to withdraw from and close deals faster.

So, if as this infographic shows, due diligence is more advanced and efficient than it has been in the past, how much more advanced and efficient could the process become in the future? Can technology and digitisation truly transform due diligence? And what are the main challenges that existing and new technologies could potentially provide a solution for in M&A due diligence?

To help answer those key questions, Merrill Corporation surveyed global M&A practitioners on all sides of a deal – from corporate and private equity firm executives, to their investment banking, legal and accounting advisers. When we asked how they viewed the future of due diligence and asked them what their expectations were for the future of EMEA M&A in the Digital Age, the findings were interesting, to say the least.

1. Greater security expected: Most EMEA practitioners (63%) believe new technologies will enable greater security in the due diligence process over the next five years, followed closely by enabling greater analytical capability (61%) and simplifying the entire process (45%).

2. Expanding teams supported by technology: Overall, 50% of practitioners expect the use of technology in due diligence to moderately or significantly increase the number of people involved in a transaction over the next five years. Some 31% expect the number to stay about the same, and the remainder (20%) expect number to decrease.

3. AI and Analytics offer the greatest promise: Most practitioners (46%) believe AI and machine learning technologies have the greatest potential to transform due diligence over the long-term, followed by data analytics (37%) and blockchain technology (17%).

4. Increasingly swift and speedy due diligence: Overall, 78% of practitioners say due diligence – from sourcing a deal to deal completion – will take less than three months on average by 2022, up from 64% expecting this improvement in 2018.

5. Compliance and Regulation will impact the process: Most practitioners (66%) believe the EU’s General Data Protection Regulation (GDPR) will increase acquirers’ scrutiny of the data protection policies and processes of target companies. However, 22% of practitioners believe it will have no impact on the due diligence process at all.

It’s clear that over the past two decades the scope of due diligence has widened considerably. Where once a check of the financial and legal documentation was considered a thorough job, due diligence today routinely covers documentation across topics including human resources, information technology, environmental impacts, regulatory concerns and compliance, commercial or market intelligence, tax, insurance, property, intellectual property, customer data and operations.

This information explosion has created its own challenges – and more potential hurdles to speedy due diligence. Indeed, this is indicated as the factor most responsible for slowing due diligence. Combine the vast scope of documentation with the lack of clear strategy, planning and communication between all parties, and you face another roadblock to overcome.

The advance of technology and digitisation has naturally enabled practitioners to better manage information and speed up the increasingly complex operation that is due diligence. The hope is that new technologies – from AI and machine learning to data analytics – can help solve some of these organizational and access challenges, potentially transformingthe operation entirely.

We at Merrill are dedicated to bringing relevant innovations and technologies together. Our powerful DatasiteOne platform is enriching the M&A due diligence process supporting successful deal execution both today and in the future.

To download the full DueDiligence2022 report with deep insight into the current and future state of M&A due diligence in Europe click below.

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Discover the challenges faced by over 500 M&A clients and advisors across Europe, the Middle East and Africa in 2018 and their expectations for M&A due diligence for the coming years. What does the future look like?

Download the Report

M&A due diligence is faster, more secure and technology-enabled than it has ever been. Discover through this infographic the highlights of what the future hold for due diligence. 

View the Infographic