How To Take a Data-Driven Approach to Acquisitions?

April 14, 2023
Mergers & Acquisitions
Programmatic M&A

According to data from BCG, 22,000 M&A deals (worth around $1.73 trillion) was announced in the first seven months of 2022. These figures only reinforce the notion that M&A activity will remain strong in the years to come.

However, while there is an abundance of M&A transactions, studies have outlined that 70-90% of deals fail to meet the primary business goals. A host of reasons have been cited for the same, but what we would like to propose is that this could be down due to the lack of a proper data-driven approach in most cases. We believe that this could be due to a range of reasons, including the traditional investment banking bias, falsified targeting, increased big-deal emphasis, and more. The result? Matchmaking in mergers and acquisitions remains broken. Also, a perhaps unjustified focus on single, large deals increases risks and depresses outcomes.

So, the question that persists: Is there any way to assure greater success of merger and acquisition deals?

We are convinced that the answer lies in adopting a data-driven approach to mergers and acquisitions.

Leveraging Data to Drive Successful Acquisitions

Success in acquisition is like finding the desired  needle from a haystack. While traditional networking practices of IBs do assist in sourcing deals, they are only limited to big bang acquisition, missing out on small but lucrative deals. And, this is where data steps in. With data as a leverage, all companies–bootstrappers, late stage startups, micro, small, medium large and everything under the sun can be traced and analyzed. However, data has its own limitations too!

While data can help companies source deals quickly; market uncertainties and changing consumer might have another story to tell. And, to troubleshoot this situation, CorpDev leaders use data and analytics to better understand the market, customer needs, competition, and the like by using a data-driven approach to acquisitions.

Adopting a Data-driven Approach to Acquisitions?

A data-driven approach to acquisitions not only helps in minimizing the risk but also enables companies to enhance the efficiency and speed of their acquisition initiatives.

They are better equipped to understand if the target is a strategic fit, how the competitors are going about their business, and more. More profoundly, a data-driven approach is vital to:

  • Tap into the acquisition opportunities from a pool of high-quality targets that otherwise might remain overlooked
  • Create a more robust evaluation process to judge potential targets holistically (not just on financial parameters)
  • Minimize risk and failure rate by relying on rich data
  • Develop the most efficient and effective acquisition pipeline to target small businesses instead of committing to big-bang deals

Increase the speed of execution to ensure quick turnaround time – something that’s exceptionally important to gain a competitive edge in the wake of a tight market

Let’s look at these factors in detail

Qualified M&A targets :

Acquisition opportunities are fragile. If not addressed with speed, high profit deals can be lost to competitors. To mitigate this risk, data can be leveraged for optimum benefit.

As known widely, large chunk of company information exists around the company websites, social media, press wires and other digital sources. This unorganized information can be collated through AI and ML technologies and converted into actionable intelligence.

This intelligence further helps in generating a list of companies that are synergistic with M&A buyers requirement and is hence qualified to be considered as potential targets.

Such a list of target companies is hard to find through traditional networking practices. However, data can help with reach intelligence, ultimately providing qualified targets in less time, adding competitive advantage to the buyer.

A 360 degree Evaluation Process :

Investments in business is a high risk activity. And, hence, every cent to the dollar counts. Having said that, evaluating all the metrics of a sell side company becomes highly significant. But, a business financials or its market positioning cannot be decided on the basis of open source databases. There needs to be a benchmark that assures 100% validation of business metrics of  the sell side company.

To solve this problem, AI and ML can help. And deal sourcing platforms like GrowthPal have got the best of it. Its AI and ML based recommendation engine scraps sell side company information across the web and the median of recurring information is set to be more accurate.

Imagine if the same process was to be executed manually. Maybe, months are invested just in gathering different sources. But, with AI and Ml, this task might take a day or two.

Once the AI and ML based evaluation is done, IB analysts can take charge of qualified targets and find which suits more with the buyers interests.

A Transforming Data Into Intelligence—Mitigating Risks :

Data is available, Intelligence is rare. And, this is the primary challenge of M&A, especially for small ticket deals. This is important as incorrect information, present all over the internet can prove to be fatal.

Therefore, experts suggest that organizing data and drawing relevant understanding out of it is important. This is how intelligence can be drawn and informed decisions can be made while selecting the most appropriate company for acquisition.

A Targeting small but multiple Deals—Averting Big bang Acquisition Failure :

As discussed earlier, data originated technologies like AI and ML can help in finding the desired needle in the haystack. And, similar attributes to finding small ticket deals but those which have potential to yield quality results.

With data leverage, companies can find small sell side companies and make multiple acquisitions, creating a thematic approach to acquisition strategy. This also averts risk of big bang acquisitions. With multiple investments of small pockets, the risk of failure decreases. But, essentially what decreases more is loss of large investments.

Assume you made a Billion dollar acquisition and the market trend functioned opposite to as expected, your entire investment may get tanked down. But this is not the case with small but multiple acquisitions. Also, building a thematic acquisition helps with this strategy.

When it comes to creating an acquisition pipeline, programmatic M&A is the key. Let’s discuss the same in more detail.

How Programmatic M&A Can Help You Take a Data-driven Approach?

A study conducted by McKinsey outlined that the companies using programmatic M&A capability have witnessed success in reshaping their portfolios and surviving.

Programmatic M&A is based on the use of data and analytics to extend the reach of buyers. It drives the sourcing of targets from a large network of potential sellers and equips businesses to execute a number of small deals seamlessly. As such, the most striking advantage of programmatic M&A is the ability to build a robust and lasting pipeline of potential deals. This repeatability or “capability” is what gives it an edge over traditional M&A. A well-executed programmatic M&A strategy is both repeatable and scalable – characteristics that enable companies to build a sustainable and lasting growth engine.

Here are some more benefits of programmatic M&A:

  • Better agility:Programmatic M&A helps companies become extremely agile. They can adapt and act quickly to the market.
  • Improves ability to invest in small business areas:Programmatic M&A improves the ability to test various small business areas.
  • Ensure capacity and capability– Programmatic M&A ensures that organizations have enough capability and capacity to close a deal successfully – thanks to efficient and continuous deal sourcing and swift decision-making.

Streamlines budget: Programmatic M&A ensures that business leaders allocate the required capital to execute successful deals. Instead of saving the budget for massive deals, companies can focus on multiple acquisitions that add immense value.

When targeting corporate development strategy with programmatic approach, it is suggested to take an expert hand that understand the intricacies of capital market and is a harbor to all IB challenges.

And, GrowthPal is just the right fit. Our technology platform helps buyers to:

  • Act on personalized recommendations:Businesses can plan their acquisitions with actionable insights pertaining to potential targets. This helps to speed up the process and eliminate noise.
  • Match target to business requirements:GrowthPal’s technology platform helps buyers to identify the right fit from a pool of 2 million+ sellers across the globe.
  • Drive relevant and speedy acquisitions:Relevant and faster decision-making process eliminates distractions and enables businesses to get on with the development of an acquisition pipeline that can yield significant returns in the long run.

If you are also looking to kickstart your data-driven acquisition journey, connect with us today.

Wrapping Up

If you are also looking to kickstart your data-driven acquisition journey, connect with us today

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