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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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Why Anti-Money Laundering is no longer just a tick box exercise

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Tremors following Russia’s invasion of Ukraine have been felt around the world. At a time when customers are already demanding more from companies, the additional pressure being felt — especially by banks and financial services — to prioritize compliance and risk management is stronger than ever before. This has been further compounded by the realization across Western democracies of the extent of the Kremlin’s financial links within their jurisdictions, adding yet more pressure on governments to implement regulatory change. The need to investigate unexplained wealth orders and provide stronger reporting measures to tackle illicit transactions is more necessary now than ever before, while simultaneously ensuring sanctions do not impact the security of ordinary citizens’ bank accounts.

Anti-Money Laundering (AML) was once merely a tick box exercise. However, those in compliance now see financial crime and any link to bad actors as a legitimate risk to the reputation and the future success of financial organizations. As the industry moves in this direction, the entire ecosystem — law enforcement, regulators, and financial institutions — must move with it. Investment in banking technology is increasingly being focused on the development of more sophisticated solutions in the AML and anti-financial crime space. Clearly, there is more to be done in establishing the openness, reliability and safety needed to ensure customers’ assets remain secure. While some of the more traditional organizations still use fairly basic tools, there is a desire to innovate quickly and effectively, with a focus on implementing high-risk–reducing activities that can provide AML alerts in real-time across both traditional finance and the growing presence of digital assets.

However, the banking sector is also on the precipice of great change and dynamism, and AML has a fundamental role in achieving this success, especially for the emerging economies market. A report by PwC highlighted that Brazil, Indonesia, Mexico, and Turkey will develop banking sectors of comparable scale to major European economies such as the UK, France, and Italy before 2040. Meanwhile, EY’s report in 2019 showed that financial inclusion can help boost GDP by up to 14% in large developing economies such as India, and up to 30% in frontier markets across Africa. These predictions are being aided by the continued rise of digital assets, growing exponentially, and projected to reach $4.94 billion by 2030, growing at a CAGR of 12.8% from 2021 to 2030, providing capital access to customers worldwide through instant decentralized transactions.

This makes the need for frictionless financial activity imperative, ensuring businesses have constant access to capital to invest alongside the security of working with banking providers with industry-leading AML services in place.

At Zenus Bank, we have approached this challenge by offering a US bank account that allows clients in over 150 countries to deposit, hold and make payments through US banking infrastructure. This form of international movement makes secure worldwide AML services an imperative.

As demand for our services has grown rapidly this year across Asia, Europe, and South America, we knew to scale at speed we needed to have a secure AML system that would allow us to grow our operations remotely without compromise. Adopting systems such as Identity Onboarding Authentication (IOA) has been key to achieving this. The technology streamlines the onboarding process for all our new customers using facial and voice recognition combined with artificial intelligence, all but eliminating the risk of individuals or businesses setting up fake accounts. IOA also validates thousands of identification documents in seconds, comparing the customer’s ID when submitting transactions to their facial recognition to provide financial security for us and our customers against money laundering. This type of full cycle integration of customer biometric validation and frictionless connectivity with multiple vendors is essential for financial irregularities and fraud prevention, eliminating old protection systems such as the need for passwords, personal questions, or other weak links in the security chain.

And so, the future of AML is two-fold: helping to fight the rising risks of financial crime that come with the increase of embedded financial services, and to ensure the ever more complex forms of payment can be completed at speed while monitoring the legality of each transaction in real-time.  AML is no longer just a tick box exercise — it is key to the future success of the financial industry.

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Making better decisions with people data and analytics at Standard Bank

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By Ian McVey, SVP & GM EMEA at Visier

 

Talent attraction, development and retainment remains a key challenge facing the financial services sector, one which has intensified due to the impact of the COVID-19 pandemic and how it has transformed working environments.

Even before the pandemic arrived, financial services was ranked the second most stressful industry to work in, second only to health and social care on a list of 12 of the UK’s most prominent sectors.

Today, financial services employers are having to keep pace with the growing need for new digital skills in the workforce, as well as placing a greater wellbeing focus on their most important asset – people.

Indeed, the landscape continues to shift at speed. According to a survey of financial services workers undertaken by UK Finance, three in 10 said they needed more digital and tech expertise, with 28% saying they needed a better understanding of the mental and physical health of their staff and customers.

Industry leaders are wary of the talent crunch as well. Around seven in 10 banking and capital markets CEOs and insurance bosses view the limited availability of key skills as a threat to growth.

This makes people-based decision-making paramount to achieving the best possible business outcomes. Reams of research support this, with several studies showing that more diverse workforces outperform others, and that happy workers are markedly more productive in their day-to-day roles. The upshot is that the firms which rank best to work at perform better on stock markets.

Ian McVey

Putting people first at Standard Bank

Standard Bank is a pioneering example of how financial services organisations can leverage workforce data and insights to make better employee and business decisions.

It is a huge business. As the largest African banking group by assets, the company has around 55,000 employees operating in 28 countries around the world.

Digitisation and modernisation have been central to the business’s strategy, both in how it provides services to customers and operates internally.

Prior to the pandemic, the company already had a solid reporting structure and process in place, but there was a crucial problem – access to reports was limited to a small number of people and they were often out of date by the time of use.

Standard Bank needed clear, real-time insight that connected their workforce decisions to business value. It was faced with two options – leaning on analytical tools already in the business which provided monthly reports, or deploy a pre-built people analytics solution that could provide instantaneous insights.

The company chose Visier to implement the latter. Here, the adoption of on demand people data analytics has been scaled across the business, empowering line managers who make important daily decisions that shape the employee experience. So far, more than 6,000 line managers are using these insights to make informed people and business decisions.

Indeed, through the pandemic, the outcome-focussed insights offered by Visier’s people analytics solution have shaped the work-life balance and hybrid working policies for the company. It underpinned a key support system for employees, from tracking sick leave to issuing gentle reminders to take all important annual leave.

Progress continues in 2022. Having a holistic view of the workforce has been influential in enabling Standard Bank to develop its digital landscape – it has highlighted where skills are needed and what processes need transforming to facilitate the journey to becoming a truly digital bank.

Proving the power of people analytics in financial services

What Standard Bank’s experience shows is that it is possible to create an agile banking investment workforce that can pivot on demand with accurate, real-time people analytics capabilities at your fingertips.

Developing an industry-leading financial services workforce is no easy undertaking. However, gaining insight into what employees are feeling and how to keep them engaged has never been easier.

By leveraging a pre-built people analytics platform, managers can create plans based on projected growth, skills, and expected turnover, and share them securely across the business with role-based permissions.

And with all employee data stored in a single system, managers can view the entire workforce picture without having to wade through spreadsheets, enabling them to make decisions with greater confidence using the information to back them up.

Across our customer base, we see a 50% greater return on equity in comparison to other solutions (23.6% compared to 15.4%), as well as a 17% lower manager turnover which collectively saves millions on recruitment processes.

That said, recruitment processes can be transformed by people analytics, too. It enables organisations to identify the traits driving turnover and discover where their best candidates are coming from – and, crucially, how to keep them engaged through the hiring process.

From obtaining talent to keeping staff engaged and on-board, a data-driven people strategy is central to all stages of building the best financial services team possible.

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