Dealmakers Say New Technologies Like AI Will Shrink Due Diligence Time, But Integration with Existing Systems Remains a Barrier
Deal makers in the Asia Pacific region aren’t as optimistic as their peers about adopting new digital processes to complete mergers and acquisitions activity in the future, nor do they believe new technologies, such as artificial intelligence, will cut the time it takes to perform due diligence as much. This is according to findings from The New State of M&A report from Datasite, a leading cloud-based technology provider for the M&A industry, and Euromoney Thought Leadership Consulting, a leading source of research and content for global business leaders.
The report, which is based on a survey of over 2,200 M&A practitioners from corporations, private equity firms, investments banks, law and professional services firms across the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) on the current state and future outlook for M&A, shows 55% of APAC respondents say their own company will still have a medium level of maturity and sophistication by 2025, the only region where most dealmakers think this. This sentiment was in line with Japanese dealmakers, 50% of whom say they expect a medium level of maturity by 2025.
Additionally, while APAC dealmakers do expect new technologies to reduce the time it takes to conduct due diligence to one to three months by 2025 from today’s three to six months, they lag their counterparts in the Americas and EMEA, who say the time will be cut to less than one month by 2025. In Japan, 60% of dealmakers say they expect due diligence to shrink to one to three months by 2025.
“While it might have been acceptable to exchange documents related to M&A via email in Japan in the past, that is no longer the preferred way to do it today,” said Yoichiro Shimizu, Head of Japan, Datasite. “Especially now, at a time when many Japanese dealmakers are working remotely, companies are becoming more willing to execute transactions virtually.”
APAC dealmakers cite challenges including integrating new digital technologies with existing systems and tools as one of the main barriers to adopting new M&A processes associated with digital technologies. Others include issues related to data security and privacy, financial constraints, a lack of talent or expertise, and company culture.
Still, APAC dealmakers do expect new technologies to enable greater analytical capability, security, and to simplify the entire M&A process. What’s more, they believe standardization of documents and processes, AI and machine learning technologies, especially as part of virtual of data rooms, could improve, enhance and accelerate due diligence the most.
Environmental, social and governance (ESG) criteria as a consideration in M&A due diligence is also increasingly important to APAC dealmakers. In fact, more practitioners in APAC than their peers in the other two regions say ESG is an important and very important consideration in M&A. Of the 669 APAC practitioners surveyed, 82% believe ESG factors will be a very important consideration in M&A due diligence by 2025, up from 27% today.
Other key findings from the report include:
24% of APAC practitioners say incomplete or inaccurate deal documents and information is the factor that slows due diligence the most.
33% of APAC dealmakers say an excessive valuation is the most common issue uncovered in due diligence that causes the withdrawal from a deal.
26% of APAC practitioners believe accessing a virtual data room with AI and machine learning technologies would help accelerate due diligence the most.
68% of APAC practitioners say they have worked on M&A transactions that have not progressed due to concerns about a target company’s ESG credentials.
The survey was conducted by Euromoney Thought Leadership Consulting for Datasite between February and April 2020. To learn more about the new findings, please visit: www.datasite.com.
Datasite is a leading SaaS provider for the M&A industry, empowering dealmakers around the world with the tools they need to succeed across the entire deal lifecycle. For more information, visit www.datasite.com