Unveiling the Goldmine: How AI and Data Analytics Can Fuel Targeted Deal Sourcing!

September 26, 2023
Programmatic M&A

What comes to your mind when you hear the word M&A, the consolidation of companies or their major business assets through financial transactions between two companies. And who facilitates it? Investment Bankers? Yes, right. An Investment Banker is the one who facilitates the M&A process which starts from Deal Sourcing and Target Identification and ends with Post-Merger Integration. In some cases, bigger companies often have inhouse Corporate Development teams that facilitate M&As.

M&As may take anywhere from 6 months to even several years to complete. How do you then reduce this timeline? Is there a way to do so? If so, how? Answer - Digital Investment Bankers. A Digital IB is an IB that integrates digital technologies and innovations into the traditional investment banking processes and services. It involves leveraging digital platforms, data analytics, AI/ML algorithms and other technological tools to enhance efficiency, accessibility, and the overall client experience within the investment banking domain. 

Sounds Great? It works wonders too. Nowadays AI has emerged as a highly effective technology in various sectors including M&A. It can now be used by digital IBs to enhance their research and analytics capabilities further to provide clients with more comprehensive, data-driven, and tailored insights, thus increasing the effectiveness of investment decisions. 

Role of Data Analytics and AI in Deal Sourcing:

AI is transforming the way M&A are traditionally conducted. It is revolutionizing the deal-making process by enhancing efficiency in identifying, evaluating, and integrating acquisition targets. One of the crucial parts of this process is Deal sourcing where an AI tool can help bankers to identify potential acquisition targets more efficiently and accurately. AI can analyze vast amounts of data, identify relevant trends, and present valuable insights which can be further helpful in  streamlining the search for suitable opportunities and improving decision-making processes. This can lead to more successful and informed acquisition strategies for businesses. Even a bank with assets over 3T+ under their name had launched a platform based on AI to automate one of their processes. 

“The days of most deals originating solely from investment bankers mixing and matching buyers, sellers, and acquisition targets will soon be over, and ultimately, AI will provide deeper insights and probabilities of deal success.” - Alexis Christofides, UK Regional Head for TCS M&A Services.

This statement effectively empowers AI's ability to perform in the whole M&A process, specifically the Deal sourcing part. Traditional methods like manually sourcing and scaping companies have been a proven method for several decades but come with the drawback of significant time wastage. In today's world where people are moving on a verge of clock, time lag has become one of the biggest backlog of traditional methods, subsequently giving rise to platforms which solve this problem.

Paradigm shift in Deal Origination with AI:

Organizations can leverage acquisitions to facilitate their expansion strategies, including increasing revenue, diversifying their product offerings, and expanding into new geographic markets. With traditional and modern methods of deal origination focused majorly on sourcing targets through internal networks or by relying on online platforms, companies are susceptible to many challenges. Six (6) such major challenges include: 

  • Lean ‍Top Funnel: You can only build a top funnel with a handful of targets when you are reliant on only your network..
  • Quantity vs Quality of Leads from Investment Bankers: Investment Bankers don’t bring a decent volume of targets on the table and when they do, only a few assets are relevant. 
  • Finding Value Deals: Bankers or online platforms fail to unearth value deals. These deals may be outside of their network or at times there are targets looking for exit but are not active online and hence, not available on online and research platforms. 
  • Lack of Bandwidth and Resources: Inadequate resources can lead to difficulties in prioritizing the selection of the most suitable acquisition targets, potentially necessitating the hiring of additional staff or outsourcing certain M&A functions
  • Inbound Leads That Don't Match Mandate Requirements: A few companies often rely only on inbound leads which may or may not be relevant. They miss out on targets that are actively looking for an exit which may be outside their network.
  • Inaccurate or outdated information on Research Platforms: Corporate development teams must be cautious about relying solely on research platforms like Pitchbook, Traxcn, Owler, Crunchbase, etc. for their deal sourcing as these platforms may lack essential data needed for target shortlisting or contain inaccuracies. Moreover, they often do not offer sensitive financial information or critical details like EBITDA, revenue, geography, customer base, and partnerships, which can significantly expedite the shortlisting and qualification process.

Most organizations looking to strengthen their market position know the importance of engaging in an M&A. But in the world of acquisitions, bigger isn’t always better! Although large, big bang deals can prove to be extremely transformative and make (or break) the performance of any organization, undertaking a series of small or moderately-sized deals can play a massive role in building businesses and adding the market cap. Although achieving successful M&A outcomes extends well beyond thorough due diligence, finalizing the deal, and resolving post-closing disputes, implementing a programmatic M&A approach can lead to improved returns for shareholders as highlighted repeatedly by McKinsey.

Programmatic M&A is a term used to describe a systematic and strategic approach to conducting multiple smaller acquisitions instead of making a big bang transaction. Its benefits are as under:

  • Instead of approaching M&A as one-off transactions, programmatic M&A involves a continuous and proactive effort to identify potential targets that align with a company's strategic goals. 
  • Targets are selected based on their ability to enhance the acquirer's strategic position, whether it's expanding into new markets, gaining access to new technologies, or achieving other strategic objectives.
  • Adopting programmatic M&A can help to develop a better framework which can further help in evaluating targets at a faster pace. 

Latest research from McKinsey confirms that companies that regularly and systematically pursue moderately sized M&A deliver better shareholder returns than companies that don’t. A programmatic approach won’t work if you don’t define the program and don’t treat M&A as an enduring capability rather than a project or occasional event.

With Programmatic M&A and the advent of AI and analytics in deal origination, companies can harness digital technologies’ full potential to up their deal sourcing game and stay ahead of their competitors.

How to adopt tech in your deal sourcing then?

Teams with inhouse Corporate Development function:  Inhouse Corp dev teams have a set-up that is a mix of channels which they use for their deal flow. They might be subscribed to online platforms, have partnerships with Investment bankers or might be getting inbound leads. Such teams can consider subscribing to a deal sourcing partner like GrowthPal to increase their deal flow with quantity and quality. Companies like GrowthPal offer a distinctive advantage with their data driven recommendation engine that includes three layers of screening to scan the entire universe and bring the most relevant targets that are ‘Ready to Transact’ directly to you starting in just 2 weeks. 

Teams with no inhouse Corporate Development function: Companies that are looking for inorganic growth via M&A for the first time are often occupied with a pressing question - do we set-up an inhouse team or do we hire a banker? For such companies, partnering with companies like GrowthPal can do wonders. GrowthPal not only can help such companies in their deal sourcing but also offer transaction support to close a deal. They handhold you from target selection, introductions, valuations, deal structures, due diligence and finally the closure. They can be your inorganic growth partner until you ramp up your inorganic strategy and set-up an inhouse team.

GrowthPal - an AI/ML driven deal sourcing partner:

At GrowthPal, we have built a data driven recommendation engine that includes over 2 Mn+ active new age businesses from tech and tech enabled sectors across geographies that helps us deliver a Qualified & ‘Ready to Transact’ M&A pipeline in just 2 weeks. We deploy a three layered screening to build your pipeline, where the first level of screening is done by rich data and intelligence which they have collated from 60+ different data sources. In the second layer, it’s the advanced AI/ML algorithms that identifies all the matching targets under the sun against your buyside mandate in the first shortlist. In the final layer of screening, their team of analysts reached out to all the matched targets to gauge the founder’s intent which is not available with any other platforms to find their interest in getting acquired. 

All the interested targets are presented to the customers as ‘Ready to Transact’ profiles starting in just 2 weeks. In our short journey, we have already delivered 2000+ profiles against 200+ mandates and closed 37 transactions. To know more about how we can boost your deal sourcing and improve transaction probability, please reach out to us.

Wrapping Up

To summarize, the transformative impact of AI and data analytics on deal sourcing in the field of M&A is huge. Traditional M&A processes are lengthy, but digital investment banking (Digital IB) powered by AI and analytics can streamline deal origination processes tremendously. AI facilitates efficient identification and evaluation of potential acquisition targets, enhancing decision-making. It's particularly valuable in deal sourcing, where it helps in identifying relevant trends and insights from large datasets. 

The role of AI and data analytics in overcoming challenges like lean top funnel, low-quality leads, finding value deals, and inaccurate research platforms will serve as a major differentiator for acquisitive companies.

Author : Isha Kale

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