In 2020, companies face an operational environment that is unlike any seen before. Rapid globalization has created fierce competition, and digitalization is driving innovation in every direction. As a result, firms that fall behind are going out of business, and more than half of all Fortune 500 companies have left the marketplace in the past 15 years.
To compete in this environment, more companies are turning to mergers and acquisitions, joint ventures, and partnerships to promote their products and stay afloat. And intuition is playing a smaller and smaller role in how decisions are made around mergers and acquisitions. As with so many other areas of business nowadays, M&A has become a data-driven process, built upon hard numbers that can help executives and entrepreneurs minimize risk.
Once management from two firms has expressed interest in potentially partnering or beginning the process of a merger or acquisition, the data teams on both sides of the negotiating table are often charged with facilitating due diligence. Of course, in a business setting that is often highly regulated and privacy-focused, data transparency for M&A due diligence situations can be tricky. Successfully navigating that dynamic is critical to the process and is often the difference between a successful merger and a lost opportunity.
With this conundrum in mind, here are three priorities for data pros that can lead to an effective data-driven acquisition process.
Secure yet Thorough Information Acquisition
While the digital age produces an abundance of data, sharing proprietary or sensitive information can be a challenging aspect of the acquisition process. That’s why many companies are turning to Virtual Data Rooms (VDRs) to share private information in a secure setting.
VDRs allow bulk uploads of critical information and data sets while ensuring that files aren’t captured, downloaded, or shared. At the same time, it allows for activity tracking and insider analytics that provide specific insights into the process, enabling potential sellers to know who viewed their information, what they saw, and, in some cases, how they felt about the result. As business intelligence company Phocas points out, when facing an acquisition, data teams on the seller’s side need to share more than their own visualizations and reports. Because the buyer’s team will likely want to perform their own analysis as well, you’ll want to provide all of the backing data resources.
When preparing data to inform a merger or acquisition, then, entrepreneurs and their data teams should consider making complete resources available to analysts from all critical decision-makers, including:
- C-Suite Executives. Providing pivotal data to the top leadership team keeps everyone in the loop and helps the decision making process move more quickly and smoothly.
- Board of Directors. A board of directors governs most large companies interested in acquisitions. Compiling reports suitable for this team can likewise help expedite requisite approvals.
- Human Resource Managers. These leaders often require access to people’s most sensitive information, such as salaries, health insurance plans, and other personal details, which are often analyzed by acquiring companies. This data needs to be carefully monitored and protected. Depending on the locations of the two negotiating parties, employee data may need to be anonymized as well.
Of course, balancing ease-of-use and security is a complicated endeavor, but it’s one that many new platforms are well-equipped to handle. What’s more, while VDRs aren’t the only type of solution for sharing company information during the acquisition process, it’s a unique technological approach that saves time, money, and resources without compromising basic securing and accessibility.
Analysis and Business Feasibility Assessments
Within the next two years, according to a recent report from Gartner, three-quarters of all data generated by enterprises will be created and processed outside of companies’ cloud servers and data centers. The information that we depend on for agile business and for M&A situations, then, is getting harder to centralize and therefore harder to control.
That’s why, despite the information being readily available, nearly three-quarters of an organization’s data goes unused. When it comes to corporate acquisitions, entrepreneurs are especially eager to convey their capabilities, a message which can quickly become muddled when too much data overwhelms those charged with assessing its consequences.
Using services like ContractZen, entrepreneurs can produce VDRs and also deploy smart tools for tagging, managing, logging, and reporting data sets. It’s a governance efficiency platform that helps make data-driven acquisitions secure and smooth.
Ultimately, critical acquisitions will rely on effective analysis that hinges on how effectively stakeholders can make a verifiable data-driven argument for their company’s valuation.
Authenticating the Conclusions
In 2020, everyone is well-aware of the prevalence of misinformation and disinformation, which means that potential buyers and partners aren’t inherently inclined to trust the information provided by entrepreneurs peddling the companies and ideas.
Especially when teams of shareholders and lawyers are involved, due diligence is pivotal to any M&A. As a result, authentication is increasingly important, as potential buyers want to know that the data truly reflects a company’s standing and potential.
If you suspect that an insider at your company might share sensitive intellectual property assets with unauthorized parties on the outside, which has the potential to derail a merger, security anomaly services like Code42 can detect and alert you when suspicious activity takes place.
Regardless, sellers need to be aware that there is often a significant due diligence period associated with mergers and acquisitions. However, by providing thorough and detailed records in a safe and accessible environment, sellers can ensure that buyers have all the information that they need to make an informed, speedy decision.
In today’s disruptive but innovative digital economy, expect more companies to survive by merging or partnering with other organizations. It’s a healthy process that produces a comprehensive and complete ecosystem that meets customers’ demands. For sellers, it’s a high-stakes game that can make or break their financial future.
Rather than leaving it up to chance, buyers want insights into their acquisitions, making the process increasingly data-driven and transparent. Those charged with producing and presenting this information can best serve their platforms by effectively preparing for data acquisition, analysis, and authentication.