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Improving Efficiency in the M&A Process

Updated: Aug 30, 2022

For financial due diligence (FDD) teams, finding ways to reduce overhead and increase deal capacity remains a top priority. The M&A process includes time-consuming steps that are rife for opportunity to improve upon for the benefit of your firm, your employees, and the bottom-line.

The last 24 months, there has been an explosion of growth in M&A deals. PwC discovered that 2021 saw a near doubling of M&A deals compared to previous years. There’s work out there if a firm can find the bandwidth to take it on. For most firms, this means bringing on more staff but unfortunately, hiring has been more difficult than ever.

How, then, can M&A financial due diligence firms rise to this challenge? How can they decrease their deal time and improve their results? How can an already maxed workforce increase their throughput and the number of deals they can manage as the market continues to expand?

Fortunately, technology is starting to rise to the complexity of today’s deals. With smart tools that can assist with or even eliminate the manual, time-consuming tasks, firms can improve their efficiency for M&A due diligence, increasing both the number of deals they can work on and the margins on those deals. And what firm doesn’t want a better bottom line?

Let’s look at the M&A process, where the biggest opportunities exist for technological assistance, and what those tools for financial due diligence are.

An Overview of the M&A Process

For a company looking to sell, the M&A process starts with planning and marketing. The company will prepare financial documents and other materials to present to a list of prospective buyers to target.

If a prospective buyer is interested in the opportunity and both sides agree to explore a transaction, it’s time for due diligence. Financial due diligence firms get involved to perform an analysis of the company’s financial situation, confirming financial details, identifying risks and helping the buyer determine the company’s enterprise value.

M&A financial due diligence involves working with the seller to obtain a list of reports and financial documents, preparing an Excel databook where analysts can identify any issues and perform analysis, and presenting a report based on their findings to the buyer.

The two parties then negotiate, and the buyer uses the FDD report to help shape the terms of the deal. When both parties agree, the purchase agreement gets signed, and final steps are taken to close the transaction.

This is a basic overview of what is a very complicated back-and-forth process in practice. An endless list of variable factors makes the real-world process much more complex. And with that complexity comes inefficiencies that cause delays, lost deals, and missed revenue opportunities.

FDD Inefficiencies in the Mergers and Acquisitions Process

To understand where the inefficiencies exist in the M&A process, let’s review the FDD firm’s activities step-by-step. Here is the basic overview of the process for an M&A financial due diligence firm:

  • Determine the deal scope with the client, usually the buy-side

  • Send a document and data request list to the sell-side

  • Review documents as they are received, update the request list for missing or incomplete items and repeat until critical requests are fulfilled

  • Convert data and documents into an Excel databook to use for analysis – highlighting any questions or items that need to be clarified by the sell-side’s management team

  • Multiple levels of review of the databook to ensure accuracy and consistency

  • Meet with the management team on the sell-side

  • Complete analysis on key scope items, like quality of earnings or net working capital

  • Convert the databook into a report for the client

  • Write and send the final report to the client

While each of these steps involves multiple processes on their own, two areas prove to be particularly time-consuming, inconsistent, and inefficient:

  • Working with the Seller to obtain required documentation and data

  • Building the Excel databook from the supplied information

In both of these areas, analysts can spend days, if not, weeks, worth of effort, drastically slowing the pace of the deal. Firms should focus on ways technology can help improve in these areas.

How Technology Increases Efficiency in M&A Due Diligence

Manual steps in the due diligence process create headaches and burnout for employees while slowing down the deal pipeline. To improve efficiency, firms can turn to digital solutions that will increase the teams’ throughput and reduce the amount of repeatable and error-prone tasks that eat up their analysts’ time.

Obtaining the Required Data from the Seller

Analysts can spend hours, days, or even weeks on the simple task of obtaining access to the data they need to do their job. This usually involves lots of emailing back and forth over partially submitted documents and missing information.

However, the majority of the information needed for financial due diligence exists within the accounting system of the business. API tools like Strongbox make it easy for firms to gain instant access to that data in a secure, seamless way.

With Strongbox, you can send the seller a secure URL or connect directly with the accounting system yourself to pull every needed report with a single click. If you require additional documents that aren’t found in an accounting system, sellers can easily drag and drop that information into your custom, branded portal.

Getting your required data now takes minutes rather than weeks. And with a SOC 2 Certification, best-in-class security protocols and encryption, all parties benefit from knowing their information is protected.

Building a Clean Databook

When an FDD analyst finally has all the required documents, manipulating that data into a usable Excel databook requires hours of work. The manual work required to convert this data leads many firms to invest in outsourced, offshore manpower. Even in these cases, analysts must dedicate hours of their day to drafting specific instructions for outsourced teams, reviewing their work and managing their deliverables for each deal.

Manual work requires extensive review. Often, managers must complete detailed reviews of each databook to ensure the information has been processed properly. This also results in a lack of consistency in databook output across the team.

Tools like Strongbox go beyond simply exporting data. The seamless connection provides financial intelligence in minutes. The Excel workbook produced by Strongbox includes data validation checks, intelligent account mapping, and advanced analytics. The output can be customized so that the formats your team uses for their databook are automatically produced with each pull.

This means the data comes ready-made to be incorporated into the firm’s databook without the needed manual clean-up. Each deal will get the same, clean report, improving consistency, reducing the human-error opportunities, and minimizing the amount of managerial review needed.

Get Started Implementing M&A Due Diligence Technology

The challenges of M&A financial due diligence won’t go away on their own, and the positive business outcomes that the right technology can produce are clear. With Strongbox, your firm can reduce burnout for your team, grow your deal capacity without needing to increase headcount, improve consistency in your output across the team (or even departments), and reduce time spent on each deal, leading to better margins for the firm. Firms using Strongbox report reduced deal time and hours saved on mundane, manual data manipulation tasks.

If you’re interested in incorporating leading technology into your process, reach out to book a demo with us. We’d be happy to help you get started, including a risk-free pilot program so you can see first-hand how the technology will work on your next deal.


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