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THE IMPORTANCE OF THE TECH TRANSITION IN RE-SHAPING M&A DUE DILIGENCE

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By Merlin Piscitelli, Datasite’s Chief Revenue Officer for EMEA

 

Global mergers and acquisition (M&A) activity re-bounded to reach a new high in the first six months of 2021, with deal activity hitting $2.6 trillion. In fact, a recent report shows, EMEA markets were driving both outbound and inbound transactions, recording deals worth €578 billion in the first half of the year – a 15 percent rise on H2 2020.

Whilst this momentum reflects the digitisation of the M&A industry and bodes well for a period of continued market recovery, the priority must be on making the management of M&A as secure as possible. Otherwise, dealmakers risk financial fines and possible reductions in target companies’ value, due to insecure data transfer practices. This challenge will only become more pressing as M&A deal activity increasingly depends on collaborative tools and continues to adjust to the new Covid-era hybrid working models.

Moreover, deal makers are often required to manage the entire M&A lifecycle, from preparing an asset and conducting an efficient asset marketing process to launching a secure due diligence phase. As a result, communication has become an additional challenge, even more so when managing a hybrid deal team and ensuring an effective and secure workflow.

M&A due diligence is not just a labour-intensive process but one of the most time-intensive parts of the M&A lifecycle. With regulatory scrutiny growing day-by-day, bespoke and secure technologies such as Virtual Data Rooms (VDRs) enabled with AI and machine learning, have become essential to enabling dealmakers to do more with less whilst reducing risk and privacy breaches.

 

Merlin Piscitelli

Virtual data rooms and advanced analytic capabilities

The due diligence landscape has transformed at pace and the sheer volume of data that is now assessed has created substantial challenges. However, in recent years, virtual data rooms (VDRs) have improved the speed and security of transactions by providing dealmakers with direct access to the information needed to conclusively determine whether they should pursue a deal.

Now, equipped with advanced analytic capabilities, VDRs are once again transforming M&A activity by supporting several workflows that make the due diligence process far more efficient. VDRs enable dealmakers to exchange confidential information in a structured way, offering advanced access control to redacting or blacklining, and improving process efficiencies and operational flow. Additional applications, including two-factor authentication, further enhance VDRs and minimise security breaches throughout the due diligence process.

 

Artificial intelligence and machine learning

Whilst due diligence is one of the most important elements in the M&A lifecycle, it’s also one of the most time consuming. For example, a recent survey found that reviewing all the documents related to a transaction was the primary cause for delays. However, there is often limited time to complete due diligence activities during a high-value deal process.

Today, Artificial Intelligence (AI) and machine learning capabilities within the VDR significantly speed up the process by automating repetitive and time-consuming tasks, such as multilingual search capabilities, risk and compliance reviews, and contract analysis, so that dealmakers can focus on executing deals, rather than being caught up in endless streams of data. The accuracy of workflows is improved, while the organisational challenges which often hinder the due diligence process are solved. Moreover, by automatically sorting, assessing, and classifying thousands of documents in minutes, AI technologies are transforming the due diligence process into a more proactive and data driven operation. This not only extends dealmakers’ bandwidth by allowing them to move away from the more administrative and time-consuming tasks, but also helps ensure regulatory compliance despite being busier than ever.

For example, The European Union’s General Data Privacy Regulation (GDPR), introduced in 2018, requires businesses to strengthen their data protection processes. Failure to comply to the extensive policies can result in fines of up to 4 percent of global annual revenue, or €20 million. When it comes to M&A, the added complexity has been particularly apparent, especially as it has slowed due diligence and even caused some deals to falter.

Whilst this evolving regulatory landscape will continue to complicate some stages of the M&A lifecycle, AI and machine learning programmes will help dealmakers navigate the challenges within the due diligence process. In fact, with 69 percent of EMEA practitioners expecting data privacy regulations, like GDPR, to be a key consideration on M&A due diligence in five years’ time, the ability to search and bulk redact sensitive information within seconds will only become more pivotal to improving deal efficiency.

 

Cybersecurity considerations

Following a rise in data breaches over the past few years, cyber risk has become a prevalent threat for businesses and it has started to take a central role in M&A activity. In fact, data shows that 55 percent of M&A dealmakers across the EMEA region have worked on M&A deals that failed to progress due to concerns around a target company’s data protection policies and adherence to privacy regulations.

As a result, cybersecurity audits are now a vital component of the M&A due diligence process, and today’s technologies offer a far more efficient approach. From categorising contracts and indexing their content for searching, to dynamic reporting on the security protocols of a business, machine learning and data analytics provide vital insights during the research stage of due diligence.

By delivering an in-depth assessment, these advanced technologies offer dealmakers crucial business intelligence and a comprehensive assessment of a business’s security policies. Ultimately, this analysis will better equip leaders to make proactive decisions and speed up the timely due diligence process.

 

Looking ahead

The Covid-19 pandemic triggered a period of unprecedented economic upheaval, however, with M&A deal activity accelerating, we should expect to see a competitive bidding landscape emerge with new market players pushing valuations higher.

Amid this backdrop, the tech transition is changing the dynamics of M&A deal activity and, once considered a differentiating advantage, digitisation is now paramount to the M&A lifecycle, ensuring greater speed, accuracy, and security across the due diligence process. Therefore, companies must ramp up their digital capabilities or run the risk of a deal unravelling and them being cast aside in favour of a more tech savvy market competitor.

 

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NutreeLife triples production with finance from Siemens Financial Services

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Plant-based snack manufacturer NutreeLife has massively increased its production capacity with the help of a hire purchase solution from Siemens Financial Services (SFS).

Founded in 2017, NutreeLife is a rapidly growing company which produces vegan protein bars, snacks and other healthy vegan products. Following a significant increase in demand, the manufacturer wanted to invest in a new production line.

As Patrick Mroczak, MD and CEO at NutreeLife Ltd explains, “We were ready to invest in the next stage of business development. We needed new equipment to meet demand but we also wanted to preserve our cash flow to deal with the volatility of the pandemic.”

To protect the business’ working capital, SFS suggested a hire purchase arrangement. Under the agreement, NutreeLife could acquire the equipment immediately and with no upfront costs. Instead, SFS tailored the arrangement so that the company could spread the cost over 5 years in regular payments and at the end of the arrangement NutreeLife will automatically own the equipment outright.

Under the hire purchase solution, the manufacturer also met the conditions for the UK government’s super-deduction tax initiative, whereby a company investing in qualifying new plant and machinery assets is able to claim 130% of the equipment’s value in year one.

“As a relatively new business, it’s not always easy to gain access to the right finance at a good price but SFS were incredibly accommodating. They really understood the benefit of the technology for our business and helped us unlock the investment,” adds Mroczak.

With the new equipment and technology installed, NutreeLife has been able to triple its production and turnover, and expand operations in tow.

“Despite the ups and downs of the pandemic, the new production line has helped us to keep things moving. As demand rises we’ve been able to take on much more staff and use our working capital towards stockpiling raw materials when needed.”

And the business’ success has not gone unnoticed. NutreeLife was awarded Small Business of the Year at the 2021 Lancashire’s Be Inspired Business Awards (BIBAs).

“Working with SFS has truly opened up news avenues of business for us. The team is so fast and responsive and clearly dedicated to finding the best solution for our machinery needs,” comments Mroczak.

Kirsty Talmage-Rostron, Business Development Manager – UK South at Siemens Financial Services comments, “It’s always exciting to work with an innovative award-winning manufacturer like NutreeLife. Despite the challenges of COVID-19, we’ve been able to help the business rapidly develop and look forward to continuing to support this growth strategy as the business expands into new markets.”

 

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HYDR DEVELOPS INVOICE FINANCE PLATFORM TO INTEGRATE WITH MAJOR CLOUD ACCOUNTING SOFTWARE PROVIDERS

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MANCHESTER – UK – 17th January 2022 – Fintech start-up, Hydr has developed its proprietary invoice finance platform to integrate with more major cloud accounting software providers including Sage and QuickBooks.

After launching exclusively with Xero in May, the Hydr platform can now be accessed by millions more SMEs in the UK who want to leverage their unpaid invoices to optimise cash flow and help fuel their growth.

Users of Sage, FreeAgent, KashFlow, QuickBooks and Xero who sign up with Hydr can get paid almost immediately for the work they have completed and invoiced, rather than having to wait out long payment terms and even having to consider extending their borrowings to maintain working capital.

Customers who link their account to the Hydr platform can expect a class-leading, seamless integration. No duplication of data is needed, they simply continue to raise their invoices with their cloud accounting provider as normal and Hydr will do the rest, funding approved invoices within 24 hours.

Hydr co-founder, Nicola Weedall said, “We’re so pleased to have achieved this product milestone. The impact of long payment terms and late payments is affecting millions of small businesses in the UK; many are navigating CBILS repayments and ramping up post-Covid trading which can put a strain on working capital. We feel so strongly that getting paid early is the best way of optimising cash flow, far better than extending borrowings.”

Hydr co-founder, Hector Macandrew said, “Invoice finance in years gone by has often been complicated and time consuming to apply for, complex to manage and opaque in pricing. It is absolutely ripe for disruption and cloud accounting and open banking has made this reinvention achievable. With our simple, transparent and fairly priced proposition, it is now more accessible and attractive to small businesses than ever. We encourage more businesses to consider it.”

Hydr helps small businesses optimise their cash flow with fully digital onboarding that takes just 15 minutes. Hydr’s platform connects with a company’s data and financial information creating a seamless digital experience without the need for the company to submit any additional paperwork. Funding decisions are given in real time and Hydr pays 100% of the value of an invoice (rather than the traditional 70-90%) within 24 hours, minus a transparent, fairly priced fixed fee. Once quoted, the fee never, ever changes and includes credit insurance.

Hydr works with small businesses registered in England in Wales that sell products or services to other businesses (B2B).

 

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