Mergers and acquisitions (M&A) activity has hit historic highs, which is helping to drive up the premium for potential targets. But companies are now using advanced analytics to drive value creation and improve the investigation and integration processes.
While integrations can be lengthy, often stretching to years, companies are recognising that the process can be both improved and sped up by making use of big data and analytics. In this article we’ll explore just how advanced analytics is shaking up the M&A space and how organisations that understand its capabilities are reaping the rewards of faster, smoother, and more profitable acquisitions.
Advanced analytics capabilities are only now being fully utilised in the space for a number of reasons. As the valuations of potential tech acquisitions have continued to skyrocket in recent years, the pressure to maximise the value from mergers has increased. The top target companies are demanding a premium that needs to be recouped in any way possible.
Capabilities are now emerging to actually be able to handle the massive amounts of business intelligence data that is being generated daily. As processing capabilities have increased and data storage costs reduced, companies can far more easily manage the vast volumes of internal and external information related to potential targets. For the first time, complex business functions and processes can be looked at in detail and in time frames compatible with fast integration timeframes.
New data visualisation capabilities and techniques are furthering the ability to evaluate acquisition target’s performance. This can now be effectively done at a far more granular level that moves beyond just high level trends or a few recent strong or weak sales quarters. For example, it is now possible to use analytics tools to not just look at quarterly revenues, but decades of invoice data covering the individual transactions, conversion rates, and margins of every salesperson involved with those transactions.
McKinsey research has revealed that advanced analytics is highly effective at helping companies with four crucial actions during the integration process:
During the due diligence phase, companies can generate new insights from external data to help inform the suitability of targets. Advanced analytics can uncover potential synergies outside of those that have traditionally been looked at. Once the M&A process reaches the negotiation stage, deal teams can gain deeper visibility into acquisition targets by using behavioural analytic techniques to better understand their new partners. And in the final stage of the process, advanced analytics can be applied to maximise the value of the merger.
The power of analytics really comes through when potential buyers can fully engage with the details of a target company. By using a unified analytics team that spans commercial, financial, and operational members looking into the patterns underlying the company data, buyers can not only understand where a business may be lacking, but also why. This then provides them with a far more accurate way to value a business as well as the insights to understand what is needed to correct any weaknesses during the integration process.
Mergers and acquisitions can be complex and chaotic. They are not quick processes and there is a lot of money on the line if the best decisions aren’t made on which companies to target, what their true value is, or how to make the most of the integration.
But advanced analytics is proving itself as an invaluable tool to improve the most important aspects of the M&A process. Advanced analytics is being recognised as part of a strategic shift in how deals and mergers are assessed as well as in recognising gaps in value determination and realisation.
If you’d like to learn more about how advanced analytics is becoming a core component of the M&A process, talk to the experts at FinXL.