Punching the Accelerator.
4 Ways Tech-Enabled M&A Is Driving Higher Deal Values.
The coronavirus pandemic has had a monumental impact on private markets, to say the least. According to recent data from Pitchbook, private equity deal value was down 20% over the first six months of 2020. Exit activity has, for the most part, dried up, with many firms opting to take a “wait and see” approach rather than parting with marked down assets.
While traditional buyouts are on the back burner for now, they won’t be there forever. The question of whether M&A activity returns with a peep or a roar is yet to be answered, but given the potential economic uncertainty of the post-COVID “new normal,” it might take a little work to drive deal values back up.
For Investment Bankers and PE funds who are looking to sell, Tech-Enabled M&A is adding a better, faster and deeper layer to the diligence prep process. In our last blog, we provided a broad overview of Tech-Enabled M&A. This week, we’re going to dive deeper on the sell-side specifically. Here are 4 Ways Tech-Enabled M&A Is Driving Higher Deal Values.
Faster Diligence Prep
Tech-Enabled M&A, in its simplest form, combines people, processes and systems to get deeper diligence faster. The Diligent® next-gen analytics software is connected directly to the seller’s systems and dynamic data books are built with QofE-ready financials and sales analytics.
One great advantage of Tech-Enabled M&A is that these processes are easily repeatable inside the Diligent software, so every month when the company closes its books, all the schedules can be updated in a matter of minutes.
By using software automation to do the majority of the heavy lifting from a grunt work standpoint, your junior bankers are freed from time-consuming tasks like performing manual tie-outs and updating schedules. This allows them to focus on value generating activities like preparing clear, high-quality analysis for the deck or Q&A.
Field Buyer Q&A Better and Faster
Buyers today are looking to get deeper inside their acquisitions than ever before. They want the specifics, the trends, the profitability – they want to know exactly what they are getting. In many cases, Excel just isn’t equipped to handle it. The depth and variety of questions can make fielding buyer Q&A slow and clunky at times, and as a result, buyers will inevitably drop out of the running.
The Diligent software helps in a couple of key ways here. For one, the data is structured to be easy to query and analyze. Once the data is in the system, Diligent allows you to do much more than pull reports and basic analysis. It lets you quickly and easily query any data you have, and marry up multiple disparate data sets for sophisticated analysis that helps you and your buyers gain a deeper insight into the business.
Two, Diligent is purpose-built to allow an unlimited number of data points to be used, which in turn, allows for analysis that is impossible in Excel, such as analysis on profitability, point-of-sale data, Big Data, etc. If your buyer can think up a question, Diligent can answer it. This speed and flexibility ultimately allows you to take more buyers deeper into the process and generate more competitive tension that drives higher sales multiples.
Tell A Better Story with the Data
On the other side of the equation, Tech-Enabled M&A also allows you to be proactive in telling your story, not just reactive. In addition to being able to perform complex analysis on any aspect of the seller’s data and stitch together disparate data sets into a clean narrative, Diligent offers a brilliant suite of dashboards and visualization tools with embedded Microsoft Power BI.
With Tech-Enabled M&A you’re able to elegantly show models that visualize how the business works, rather than trying to work your way through a cumbersome and complex story. People will very rarely buy something they don’t understand. With Tech-Enabled M&A, your pitch will be more simple, straightforward and concise – easing your path to the sale and making it a more attractive package that keeps more buyers interested.
Triage Before Going to Market
One final and very important way Tech-Enabled M&A helps you drive greater deal value is through the immediate visibility it provides for you, as the seller. There’s nothing worse than watching a deal die when you’re deep into the process.
Problems that can kill the value of your deals (or even kill the deals altogether) often sit well below the surface. When the data is cumbersome and complex, deals can break down and die on the vine. With Tech-Enabled M&A, you can quickly triage and fix potential issues before you even go to market.
With the Diligent software, you’re looking at clean data, and it’s easy to slice, dice and drill down to get to the root of a problem and recommend a fix before it can damage the value of the sale. That insurance alone is worth the price of entry.
With so much uncertainty, sellers will need to work hard to drive maximum deal values as private markets open back up to the idea of traditional buyouts. Fortunately, Tech-Enabled M&A helps sell-side operators give the buy side more of what they want, with less heavy lifting. As we move on to the next chapter, looking deeper into Tech-Enabled M&A is a smart approach for those looking to drive the highest possible deal value.
How are you seeing buy-side requirements changing? How quickly do you think private markets will rebound from their current lull? We’d love to hear what you think. Sound off on social media now and join the conversation.