How Can Technology Transform M&A Due Diligence?

Ordinarily a time-consuming process with many regulatory pitfalls, the emergence of new legal technology has greatly simplified due diligence by taking it out of lawyers’ hands and delegating it to automated programmes. Merlin Piscitelli examines how far this trend has come in 2021 and how it will shape the legal sector in years to come.

The COVID-19 pandemic triggered unprecedented economic upheaval and has changed the way in which we do business. However, global mergers and acquisition (M&A) activity re-bounded to reach a new high in the first half of 2021, with deal activity reaching $2.6 trillion.

According to a recent report, EMEA markets were at the forefront of outbound and inbound transactions, recording deals worth €578 billion in the first six months of the year – a 15% rise on H2 2020. Moreover, new EMEA projects on Datasite’s platform are up 40% year-over-year through July 2021 compared to the same time last year. This momentum bodes well for sustained recovery and shows no signs of slowing moving into H2.

Still, the actual management of M&A needs to be as secure as possible, or else dealmakers risk financial fines and possible reductions in target companies’ deal value due to insecure data transfer practices. As we adapt to the new COVID-era and embrace hybrid working models, this challenge will only become more pressing as M&A deal activity increasingly depends on collaborative tools.

Amid a backdrop of enhanced regulatory scrutiny, dealmakers must focus their efforts on maximising compliance, in addition to minimising risk and privacy incidents during the due diligence process, to ensue deal making activities remain on an upward trajectory. This is where technology can help.

M&A deal activity increasingly depends on collaborative tools.

With legal teams more dispersed than ever before, communication and collaboration have become an additional challenge, alongside managing an ever-growing workload. Bespoke technologies are now in dire need to improve process efficiencies, extend dealmakers’ bandwidth and retain talent. Doing so ensures lawyers can focus on executing deals, rather than being caught up in endless streams of data.

Virtual data rooms and advanced analytic capabilities

The due diligence landscape has transformed at a rapid pace. Gone are the days where an analysis of the financial and legal documentation was considered rigorous enough. Now the scope has expanded to include areas such as human resources, intellectual property, proof of environmental, social and governance policies, and tax considerations.

The sheer volume of data that is now assessed has created significant challenges within the due diligence process. However, virtual data rooms (VDRs) have drastically improved both the speed and security of transactions over the past decade by providing dealmakers with direct access to the information needed to conclusively determine whether they should continue to pursue a deal.

Now, equipped with advanced analytic capabilities, VDRs are once again transforming M&A activity by supporting a number of workflows that make the due diligence process far more efficient. From in-platform messaging and advanced access control to redacting or blacklining, VDRs enable involved parties to exchange confidential information in a structured and transparent way, improving operational flow. Additional applications, including two-factor authentication, further enhance VDRs and ensure that security breaches are minimised during the due diligence process.

Gone are the days where an analysis of the financial and legal documentation was considered rigorous enough.

Artificial intelligence and machine learning

Whilst the due diligence process is one of the most important aspects of the M&A lifecycle, it is also one of the most time consuming. Understandably, a recent survey found that verifying and reviewing all the documents related to a transaction was the leading cause for delays during this process. However, in a high-value deal, there is often limited time to complete the due diligence process due to pressure from other prospective buyers.

Artificial Intelligence (AI) and machine learning capabilities within the VDR can significantly speed up the process by automating repetitive tasks and supporting an effective and secure legal workflow so that lawyers can capitalise on opportunities despite being busier than ever. In fact, 64% of EMEA dealmakers believe that the due diligence process will take less than one month by 2025, from the one to three months it takes today, because of new technologies.

From automated document reviews and multilingual search capabilities to contract analysis and risk and compliance reviews, AI and machine learning capabilities improve the accuracy of workflows and help to solve some of the organisational challenges which typically hinder the due diligence process. Moreover, by automatically sorting, assessing and classifying thousands of documents in minutes, and allocating these into appropriate folders to review, AI technologies are transforming the due diligence process into a more proactive and data driven operation. This not only allows dealmakers to move away from the more administrative, time-consuming tasks and concentrate their time and energy on other parts of the deal, but also helps ensure regulatory compliance in an increasingly complex landscape.

For example, The European Union’s General Data Privacy Regulation (GDPR), introduced in 2018, requires businesses to bolster their data protection processes. Failure to comply to the comprehensive policies can result in fines of up to 4% of global annual revenue, or €20 million.

64% of EMEA dealmakers believe that the due diligence process will take less than one month by 2025.

When it comes to M&A, the added complexity has been particularly apparent, especially as it has slowed due diligence and even caused some deals to falter. For example, in 2018 a multinational hotel chain received a £99 million GDPR penalty fine from the UK Information Commissioner’s Office after its M&A due diligence process failed to highlight that that the company it was acquiring had a severe cybersecurity breach four years previously.

Whilst this evolving regulatory landscape will continue to complicate some stages of the M&A lifecycle, AI and machine learning capabilities can help dealmakers to navigate this challenge during the due diligence process. In fact, with 69% of EMEA practitioners expecting data privacy regulations, like GDPR, to be a key consideration on M&A due diligence in five years’ time, the ability to search and bulk redact sensitive information within seconds will only become more pivotal to improving deal efficiency.

Cybersecurity considerations

Cyber risk is an increasingly prevalent threat for businesses and, following an increase in data breaches across the globe, it has started to play a more important role in M&A activity over the past few years. In fact, a recent survey of M&A dealmakers across the EMEA region found that 55% of respondents had worked on M&A deals that failed to progress due to concerns around a target company’s data protection policies and adherence to privacy regulations.

Amid this backdrop, cybersecurity audits and evaluations have become a vital component of the M&A due diligence process, and today’s technologies offer far more efficient and comprehensive approaches. From categorising contracts and indexing their content for searching to dynamic reporting on the security protocols of a company, machine learning and data analytics can help provide critical insights during the research and analysis aspect of due diligence.

By providing a more in-depth assessment, these advanced technologies provide dealmakers with crucial business intelligence and a more comprehensive assessment of a target’s security strategies. Ultimately, this information will only better equip leaders to make proactive decisions during the M&A process and speed up the timely due diligence process.

Looking ahead

The tech transition is changing the dynamics of M&A deal activity. Once considered a differentiating advantage, digitisation is now paramount to the M&A lifecycle. From VDRs and advanced analytic capabilities to AI and machine learning programs, these technologies can better equip dealmakers and ensure greater speed, accuracy, and security across the M&A due diligence process.

With M&A deal activity picking up momentum, we should expect to see a competitive bidding landscape emerge with new market players pushing valuations higher. Amid this backdrop, companies will need to ramp up their digital capabilities. Otherwise, they will run the risk of a deal unravelling, going cold or being snapped out from under their feet by a more tech-savvy market competitor.


Merlin Piscitelli, Chief Revenue Officer for EMEA


Telephone: +44 20 3031 6300


Merlin Piscitelli is Datasite’s Chief Revenue Officer for EMEA. Datasite is the leading SaaS provider for the M&A industry, giving dealmakers the tools and insights they need to succeed across the entire deal life cycle.

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