Rethinking Deal Sourcing and Due Diligence for The Digital Age

As the pandemic makes it harder to find and close deals in-person, the role of technology is rapidly evolving to become a key differentiator in driving deal success. From a boom in virtual data rooms,1 to emerging open-source intelligence tools (OSINT), technology is enabling deal-makers to identify and assess transactions through varied lenses such as environmental, social and governance (ESG) and diversity mandates.

  • Nimble Deal-sourcing

    Deal-sourcing is becoming not just more complex but heightened competition is driving players to close transactions faster. One way to achieve this is to adopt data-driven and AI-enabled approaches that help more accurately identify the right targets.

    For example, RocSearch recently helped a UK-based PE firm shortlist 25 high-potential investment targets in the pet foods market using RocEye, a proprietary deal sourcing platform. The platform helped the firm screen from a pool of more than 1,000 companies across Europe, eventually leading to a successful acquisition for the company.

    Over the past few years, RocSearch has also helped dozens of firms save precious analyst hours. In a recent client engagement, we helped a European PE firm save more than 800 analyst hours in deal origination. With another deal sourcing engagement, RocEye facilitated a multi-million-pound acquisition in a span of less than three months.

  • Integration Mandate

    New market realities and widespread lockdown restrictions have also triggered a boom in technology M&A,2 with many companies rushing to add critical digital capabilities. But there have been significant integration challenges, particularly in cross-border, cross-culture, and cross-industry deals. The success of these deals may eventually ride on rigorous pre and post due diligence efforts.

    Another area where technology can help M&A practitioners is in helping mitigate risks, particularly while navigating operational challenges with divestitures. These transactions often require firms to bundle supplier contracts across many divisions, creating complexities when separating a business unit. Additionally, supplier contracts frequently have major inherent constraints that may go unnoticed. In such scenarios, AI can potentially assist businesses in determining their full exposure before they decide to divest a unit.

  • Beyond Virtual Data Rooms

    Virtual data rooms continue to be in demand as M&A activity soars. There has also been a significant rise in the adoption of deals databases, or platforms that allow companies to showcase a deal to numerous parties, while also providing real-time access to trade info and details with potential buyers.

    To be sure, virtual data rooms have been in the space for some time now and have been favored in part for their ability to expedite deal due diligence by allowing potential buyers to access information through a secure connection.

    These platforms will likely see a further uptick in adoption as data volumes increase and M&A processes such as governance and risk become more. According to several estimates, the virtual data rooms market is expected to grow in the double digits over the next few years. PE-backed virtual data room provider Datasite saw a 30% jump in revenues in 2019.3 While another player, US-based Donnelley Financial Solutions, reported strong demand from Special Purpose Acquisition Companies (SPACs) in its recent investor updates.

Conclusion

Leveraging technology such as open-source intelligence tools could be key in identifying the right mergers and acquisition opportunities and enabling a digital deal ecosystem that helps buyers and sellers enhance value-creation. Platforms such as RocEye, which incorporates a unique blend of automation, human intelligence, and a holistic sourcing approach, can help companies source direct and indirect opportunities that can augment their deal pipelines across thousands of niche and emerging sectors.

1The Future Of M&A And Automation, Forbes, April 9, 2021
2The tech industry is leading a record boom in mergers and acquisitions, Quartz, July 3, 2021
3Private Equity Firm CapVest to Buy Virtual Dataroom Datasite, Bloomberg, Oct 20, 2020

About RocSearch

RocSearch provides extensive buy-side and sell-side support to leading private equity firms, corporate finance advisory firms and corporate M&A teams. Our data intelligence-driven offerings span buyer and target identification, market and commercial due diligence support, investment thesis validation, market mapping, comparable and intrinsic valuations, competitive benchmarking, ESG assessments, and capital structure analyses.

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