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How can dealmakers deliver M&A success in 2022? Can they exceed 2021 record highs?

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DIGITAL REMITTANCE PROVIDERS FUEL INCREASE IN CROSS-BORDER MONEY TRANSFERS

Merlin Piscitelli, Chief Revenue Officer, EMEA, Datasite

Despite some difficult market challenges and the ongoing global pandemic, 2021 became one of the most impactful years for M&A dealmakers to date. The value and volume of deals over the course of the year set new records, reaching $5.63 trillion in December 2021.

This is 40% higher than the value recorded for the whole of 2020 and breaks the previous value high set back in 2007, prior to the financial crisis. In fact, new global diligence projects on Datasite, which are deals at their inception rather than announced, are up year-over-year by over 30% as of the end of 2021.

Pressure to continue delivering this level of success in 2022 is mounting, and dealmakers are eagerly looking ahead, analysing what the biggest M&As biggest dealmakers and dealbreakers could be for this year.

To answer this question, Datasite surveyed 600 dealmakers in the UK, EU, and US on the outlook for M&A in the next 12 months and whether 2022 is likely to bring more record-breaking activity. The results show that while there are some obstacles, dealmaking is likely to continue to soar in 2022.

Merlin Piscitelli

Nearly three in four dealmakers surveyed said they expect that global deal volume in 2022 will increase.  Additionally, when asked about the types of opportunities for M&A activities in 2022, larger acquisitions (22%) stood out as the leading choice, followed by joint ventures and partnerships (19%) and debt-related investments (16%). When asked about the specific transaction types likely to increase next year, 31% said restructurings, 27% with refinancings and debt financings, and 27% said joint ventures and partnerships.

However, despite the positive outlook, it won’t be smooth sailing for all deals. Dealmakers expect to encounter several obstacles, including inflation and regulation.

Inflation – a dealbreaker for M&A deals in 2022?

With interest rates in the US and UK expected to increase over the course of 2022 to tame growing post-pandemic inflation, dealmakers concerns are growing. Inflation is currently hovering at around 5% in both countries and well above central monetary authority targets. In fact, the Bank of England recently raised its interest rate to 0.25% in December. The Federal Reserve’s Open Market Committee is also expected to make at least seven interest rate increases by the end of 2022, causing more concern.

In the UK in particular, inflation was cited as one of the core reasons as to why some deals were derailed in 2021, based on responses from close to two thirds (64%) of 200 UK dealmakers. Almost one in four (24%) said inflation changed valuations in 2021, while 22% said it changed company operating assumptions and 17% said inflation fears caused a deal to fall apart. Still, higher than normal valuations may continue in 2022. There’s certainly been an increase in the number of high-value companies in the UK, with 29 unicorns created in 2021, signifying a 25% increase year-over-year.

The impact of the National Security and Investment Act on M&A

There are also regulatory issues to keep in mind. The National Security and Investment (NSI) Act came into effect on Jan. 4, 2022, and requires businesses seeking to acquire certain UK companies to notify the Department for Business, Energy, and Industrial Strategy about their intentions to do so, should it fall within one of the 17 mandatory areas of the economy. Mandatory notifications and clearance will be required for deals where there is an acquisition of more than a 25% shareholding or voting rights, or a change in the quality of control. It also gives the UK government powers to scrutinise deals on national security grounds, even after deals have been completed.

This is a major development in the UK’s system for screening investments for risks to national security, and forms part of a trend towards stricter control of foreign direct investment seen elsewhere in the world. The regime change also reflects wider concerns over technological sovereignty and strategic acquisitions of undervalued businesses – which have only been aggravated by the COVID pandemic. This means companies and dealmakers will now need to consider several more factors in the dealmaking process, including timelines, procedures, screening criteria and timing of the transaction.

Future-proofing the M&A sector with technology

With all the activity in M&A, the pressure to complete transactions, even immensely complex ones, remains high. This has put pressure on M&A resources, most notably dealmaker bandwidth. Almost 2 in 10 (18%) dealmakers said they were forced to turn away deals in 2021.

When it comes to selling a business or asset, one of the most challenging parts of the M&A process is organising and preparing the files needed for review by potential investors or purchasers. Investment banking analysts often spend weeks reviewing thousands of files to figure out how to organise them and prepare them for a transaction.

To overcome this obstacle, dealmakers around the globe said they are looking to technology to enhance their efficiency and operational effectiveness. In fact, 31% of dealmakers said they relied more heavily on technology to counterbalance some of the bandwidth challenges.  By using statistical methods that allow a system to learn from data, and then make decisions, artificial intelligence (AI) and machine learning can leverage an algorithm to sift through those large volumes of data and content in a matter of minutes, not weeks, freeing up dealmakers to focus on higher value activities. We expect this trend to continue in 2022.

A positive forecast

While the current economic environment does pose some challenges for dealmakers – from rising inflation and tighter regulatory measures to supply chain constraints, labour shortages and ESG risks – they’re unlikely to dampen It is unlikely to dampen the number of deals set to take place this year as all indicators show that 2022 is on track to be another banner year for M&A.

 

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Ransomware chokes COBRA: How AI-powered data analysis can support financial services’ plight

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By Toby Butler, Financial Crime Solutions Manager at Ripjar

 

Ransomware attacks are on the increase in the United Kingdom. Most of the British Government’s COBRA meetings have been convened in response to ransomware attacks, showing how cybersecurity breaches are as pressing as national emergencies and crises. The National Cyber Security Centre’s (NCSC) annual review found this year that the country was hit by 17 ransomware incidents that were so impactful they “require a nationally coordinated response”. That extends to the financial services sector, which saw an increase of ransomware attacks with 55% of organisations hit in 2021.

Where does this leave the sector and how can artificial intelligence and machine learning be instrumental in understanding the risks companies face against future ransomware attacks?

Toby Butler

Company information is being stolen and sold to different threat groups, who prey on the individuals in that organisation who are more likely to pay them. The UK is one of the most cyber-attacked countries in the world and the Government has been criticised for being “ill-equipped” to deal with this exponential rise of fraud cases.

 

Ransomware-as-a-Service

Ransomware is one of the most common forms of cybercrime. Fighting it has become one of the biggest problems that organisations today face during their everyday operations. For instance, Malware (malicious software) encrypts the files of a single computer, then works its way through an entire network to reach the server and inflict maximum damage. Company information is being stolen and sold to different threat groups, who prey on the individuals in that organisation who are more likely to pay them.

When these attacks occur the victims, more often businesses, are left with minimal options. If they have substantial backup solutions already in place, they can attempt to restore the encrypted data to their servers. But if that data isn’t already secured elsewhere, they may need to pay a ransom to the criminals behind the attack. Thereby allowing the business to function once again and restoring their reputation. The cost of paying the ransom will feel considerably smaller compared to starting a business again from scratch. Sophos’ State of Ransomware in Financial Services 2022 report found that 52% of financial services organisations paid the ransom to restore their data, the average remediation cost in financial services was US$1.59M.

Cybersecurity Ventures estimates that ransomware is set to cost global businesses more than $256 billion by the end of 2031. By that token, organisations need to be extremely mindful of the potential threats they may face. Businesses need to understand the methodologies these hackers use, to address the weaknesses within their domain and take measures to isolate and prevent further ransomware attacks from happening again.

 

The rise of WAMs

According to a recent report by security firm CyberSixgill, 19% of the 3,612 cyberattacks that took place in 2021 were traced back to Wholesale Access Markets – or WAMs for short. WAMs are, in essence, underground internet flea markets. These markets are where aspiring attackers come to purchase network access from threat actors – the individual or entity involved in carrying out the cyber-attack. Types of threat actors include insiders, cybercriminals, rival organisations, or even nation states stealing data.

WAMs sell access to multiple compromised endpoints (or pathways) for around 10-20 dollars. Researchers found that WAMs listed access to approximately 4.3 million compromised endpoints in 2021, which include access to both provider and enterprise software (for example, an organisation’s Slack channel) up to 180 days before the attack itself took place. This shows how long these compromised endpoints remain undetected without proper internal analysis.

 

How can Financial Services stay ahead of the curve?

The use of Artificial Intelligence (AI) and machine learning is undisputed across modern businesses and sectors, and continues to revolutionise processes across the board. AI is a significant player in the financial services industry, building the ‘cyber-wall’ against nefarious users. It gives organisations optimal insights into reducing the likelihood of a ransomware attack in the future.

Namely, AI and machine learning collects and analyses vast amounts of messy (structured and unstructured) data from disparate sources. The challenge for the sector is to understand the volume and variety of the raw data collected from any source to build better protection in the future.

Structured information could be best understood as the clear data we see in a table. For example, the following attendees made a business meeting: first name – Joan, surname – Smith, age – 46. But unstructured information is information presented in a complex manner. For example, ‘there were five people who attended the business meeting, one of whom was forty-six and called Joan Smith’. Naturally, due to the complex nature of the prose, it would be more difficult for a machine to process that data into a digestible format for further risk analysis. This is where AI continues to prove invaluable.

AI uses natural language processing to understand the information provided on the web. As the software continues to evolve, natural language processing reads the information in a way a human would to extract the key information from the text. By incorporating AI and machine learning within an organisation’s IT infrastructure, companies operating within financial services can be better equipped to handle cybercrime.

These tools are flexible and adaptable, they can be configured to analyse different types of data from different sources to curate key insights. This collated information provides a better analysis of the organisation’s exposure, allowing them the opportunity to get upstream in preventing future attacks. This kind of approach is essential to processing listings on WAMs.

The power to analyse data to identify weakness is vital in the battle against cybercrime. It gives organisations a better understanding into what they could expect to see in the future. Hosting the correct data, and with the analytical skills, financial organisations can gain a better understanding of the methodologies and weaknesses in-house that attackers use and exploit to hold them to ransom. Organisations can then use this as a reference to pinpoint compromised endpoints, giving them a chance to reduce access before this route can be exploited and ruin their business.

With cybercrime and ransomware continuing to remain prevalent, it’s vital that financial services companies understand how they can get ahead of the curve and build a robust security platform within their IT infrastructure that can withstand an attack. In 2022, a ransomware attack occurred every 40 seconds. The mindset for the sector needs to be one of when, not if.

Organisations need to be thinking about an attack now – before it’s happened. Pre-planning and preparing for the worst possible outcome from future threats and adversaries. The introduction of AI and machine learning in the fight against cybercrime is a must, and the sooner the industry gets behind in implementing AI, the safer it will be through the next decade.

 

 

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SVEA BANK ACQUIRES AREX’S FINTECH OPERATION IN FINLAND

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AREX Markets, the data-driven FinTech company that drives financing costs down for SMEs and enables them to get paid quicker, has announced the sale of its Finland operations to Swedish payment and financing institution Svea Bank.

With the deal, Svea will further strengthen its position as a corporate financier, as AREX’s c.1200 Finnish customers and partnerships in the areas of financial management and financial management software will be transferred to the bank’s portfolio. The Finnish operation of AREX has financed over EUR 500M worth of invoices.

AREX’s Spanish and UK operations remain unaffected and remain focused on building embeddable financing products for third party platforms. Customers in Finland have been informed of their transition, and their contracts and service details will port across to Svea.

Svea is reshaping the playing field of corporate finance in Finland, and taking on the operations of AREX in the region is a natural step to strengthen their own business and at the same time offer AREX’s partners and customers an easy path to a wider range of services than before.

“Over the years, Svea has grown a lot also through business transactions, therefore acquiring AREX’s business operations in Finland was a good and natural solution for us. In addition, the deal is pleasant for us at Svea because the focus of our activities is to help partners and customers succeed – offering AREX’s partners and customers a wider range of services is exactly that,” says Pasi Väre, country manager of Svea in Finland.

The deal also brings new opportunities for AREX to focus on the UK and Europe in its roll out of embeddable financing products, which can be white-labelled by neobanks, ERPs and accounting software alike. The business is seeking to bridge the liquidity gap faced by most small businesses in the face of a recessive economic climate.

UK SME’s can continue to access AREX’s core invoice financing product through the Xero marketplace.

“For us at AREX, this is a great step: we are developing a stronger presence in the field of embedded finance, which is underpinned by our sophisticated marketplace software, our strongest point,” says AREX’s CEO, Airto Vienola.

“For the AREX team it was extremely important that we find the best possible corporate financier to take care of the business’ customers and partnerships in Finland. Svea convinced us with their customer and partner-centric approach”, adds AREX’s co-founder Perttu Jalkanen.

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