Digitization in Due Diligence in M&A processes
The role of digitization in M&A operations
In today’s business world, digitization has become a fundamental tool for competitiveness and long-term success. Corporate transactions are no exception, and companies are increasingly turning to digitization to optimize and improve their merger and acquisition processes. In this article, we explore the role of digitization in corporate operations and how companies can leverage this tool to maximize their success.
Improving efficiency in the Due Diligence process
Due diligence is an essential process in corporate transactions, in which the financial, legal and operational situation of the company being acquired is examined. Thanks to digitalization, we have significantly improved the efficiency of this process, enabling faster and more accurate information gathering and better collaboration between the parties involved.
Digital tools, such as due diligence management platforms and artificial intelligence solutions, can automate much of the due diligence process and enable a more accurate and efficient assessment of the information gathered. This can save time and resources, allowing companies to conduct corporate transactions faster and with greater accuracy.
Digitization also improves collaboration between the parties involved. Digital document management solutions and communication platforms enable better collaboration between teams of lawyers and consultants on both sides, helping to identify potential contingencies and risks.
In this sense, the Clean Room or Data Room is a tool that is less implemented in Spain than in other locations, and that is an interesting way to lighten the process, while facilitating the appreciation of operational and financial synergies between the acquiring entity and the company target to be acquired.
Improving the evaluation of intangible assets
The valuation of intangible assets in an m&a process, such as trademarks, patents and intellectual property rights, undoubtedly have their weight in the final valuation of the company being purchased.
Some digital tools, such as intangible asset management systems, allow the collection and evaluation of information on said assets. Furthermore, artificial intelligence solutions can help assess the value of intangible assets and identify opportunities for their improvement and optimization.
Improved post-closing management
Once a corporate transaction has been completed, digitization can also be a valuable tool for post-closing management. Digital management tools help the integration process of the acquired company, and make it possible to objectify future results. To the extent that the transaction price is sometimes linked to the result of subsequent years, the measurement of some parameters will have a direct effect on the agreed price. The same occurs with respect to the release of the guarantees that had been agreed upon at the signing or date of the agreement.
The same solutions can be applied to determine and assess compliance with the agreed obligations for the interim period between signing and closing. Project management systems help coordinate and monitor integration activities.
For their part, other artificial intelligence solutions help identify opportunities for improvement and optimization in the process.
Correctly managing communication with the staff in a team integration process, especially in the interim period between the signing and closing, is essential for a correct transfer of control, and for the correct continuation of the activity without reducing productivity.
There are multiple internal communication tools that facilitate the implementation of a communication plan with employees and key company personnel.
There is no doubt that the correct use of certain tools now allows for a faster and more accurate collection of information, better collaboration between the parties involved and a more precise and efficient evaluation of intangible assets. All this results in the improvement of processes when approaching a due diligence, and a more realistic approach to the valuation of the company, its EBITDA and its assets. This not only leads to a more accurate analysis, but also to the possibility of shortening the process, something very positive and valued by the agents involved in this type of operations.
The integration process, aided by the implementation of measures for the coordination and supervision of corporate activity, allows for a more orderly and therefore more peaceful transfer. Especially if we consider the possibility of objectively measuring those issues that according to the agreements reached in the SPA (contract for the purchase and sale of shares or participations) have been pending subsequent valuation, either for the collection of a retained price, for the achievement of an earn-out or for the release of guarantees. We addressed this issue more intensely in our article “Corporate transaction closing mechanisms“.