Second to its people, data is one of the most powerful assets any company has, and this point becomes even more evident in merger and acquisition (M&A) deals. If you are running an organization and planning to undertake an M&A, how would you cope with it on the data level? You can struggle for accurate and reliable analytics in your organization, and this issue comes to the forefront when handling data from the two companies during an M&A deal. Complete integration often takes months or even years to accomplish, and you must take care of proper data integration throughout this period.
Business Intelligence is one of the technologies that can help you handle tremendous amounts of information and turn it into fact-based business insights. We’ve talked to a financial expert who has been involved in M&A deals and knows the true value of BI in making them happen efficiently.
See the story behind the numbers
More than eight in ten directors or higher executives at firms with at least 10 million dollars in revenue see data analytics as becoming increasingly important to M&As in the coming years. How can technology-driven data change deal-making? Instead of raw monotonous Excel tables with numbers, you get easy-to-read visualizations based on these tables and gain deeper insights into the company’s real story.
For starters, whether you are buying or selling a company, you need to know its fair price. To do this, you have to consider a number of indicators that are pretty tricky to get right, such as P/E Ratio, EV/Sales, DCF (Discounted Cash Flow), Replacement cost, etc. High-quality merger and acquisition data analytics, enabled by a BI solution, empowers you with a business vision that eventually impacts the value of a deal. The influence of the technology will only increase in the coming future, so hop on the BI train before your competitors leave you behind.
Pre-deal stage
One of the crucial functions of BI in M&A is the mitigation of risks, such as overpaying or, even, being deceived by fraud. In the pre-deal stage, you investigate companies that might be a good fit for you. However, at this point, you only have access to the public data of the target company.
By building revenue growth trends, analyzing profit margins, and identifying profit and loss outliers for the company you’re interested in against the overall industry situation over the past few years, you can identify whether the data is true. Such visualizations help bring to the surface what is easy to miss behind endless rows of numbers and uncover cases when someone cooks the books. You can identify whether the company’s financial reports reflect a fair view of its actual financial and operational situation as well as measure the company’s earnings quality.
The pre-deal stage includes due diligence and negotiations phases. Let’s investigate them in detail to see how Business Intelligence can provide comprehensive and valuable analytics for acquisitions or mergers.
Due diligence
When organizations are just stepping into the M&A process, there’s the Chinese wall between them — both parties have access only to public data. But still, with a BI solution you can:
- Compare targeted companies and the profitability of deals regarding what new market segments or markets you can enter.
- Gather and analyze actual targeted companies’ employees’ skills to identify the most beneficial option for merging in terms of social capital.
Negotiations
At this stage, the Chinese wall is no longer as impregnable as it used to be at the due diligence phase. You can ask the targeted company for data that isn’t publicly available to protect yourself from a bubble deal. For instance, when you buy a company, you can request to see an aged receivables report and visualize this information with Power BI, Tableau, etc. to simplify and streamline its analysis. Knowing which payments are overdue (30/60/180, etc. days) is crucial as the more overdue the receivables are, the less chance of getting the money from the targeted company’s debtors is. In expert hands, BI helps to identify inconsistencies and cases related to data falsification.
Another example where a BI tool can be of much help is in identifying reversals of the sales revenue transactions registered in the previous financial periods.
Beyond that, Business Intelligence for mergers and acquisitions allows you to analyze which employees you might lose. For instance, an automated BI solution can gather the information from the LinkedIn profiles of a targeted company’s employees. A dashboard graph based on such data can illustrate how many of them have recently updated their work experience and skills section or set an “open to work” status — most likely, these employees will leave the company. By combining information from profiles with KPI data on the dashboard, you’ll be able to identify key employees and monitor their readiness to leave the organization or stay.
Armed with the right data, you can leverage the social capital inherited from another company to the fullest. Yes, there can’t be two CFOs in a company. But if the CFO from a targeted organization is one of the key employees who creates real value for the deal, you should consider how you can retain the talent.
Deal stage
For all the merits of Business Intelligence, it needs to clearly state what it is and what it isn’t. BI is definitely not an almighty tool that will do the job for you. People are paramount. However, with BI, your employees can fully reveal their potential in choosing what’s best for your business. The technology helps to:
- Identify the ways of increasing the asset effectiveness of a merged company. You can analyze the equipment’s performance to minimize the risk of downtime. When you check the condition of the targeted company’s equipment and choose the criteria by which you’ll track its wear and tear, you’ll be able to predict its possible failure in the initial stage and the length of its service life.
- Determine the highest-priority products to launch and how much effort you can devote to developing new products. For example, you’ve absorbed a company that makes products similar to yours. In this case, a BI solution will help identify high-margin products to manufacture. This is crucial because as a result of the merging production facilities, the capacities of both companies may not be enough to produce all the goods you want. So until the merger or acquisition is over, the technology will help you reach a compromise.
With Business Intelligence, you can significantly facilitate data processing, especially if you are entering into international deal-making.
Don’t take a rain check on implementing BI solutions
Post-deal stage
It may seem that when the most tricky part of the deal is settled, you can finally breathe out. But in reality, you still have to take care of post-deal integration as, at this stage, you get access to the Big Data of the target company.
Big Data acquisitions are especially complex in highly regulated spheres such as finance and healthcare due to big data security concerns. For instance, if a pharmaceutical organization acquires a startup, the former receives data from laboratory studies. When it comes to medication research, the amount of information is genuinely overwhelming and the thing is that it can be manipulated. If you get tons of lab results in Excel, you have to be no less than a genius to uncover discrepancies. Business Intelligence in mergers and acquisitions makes such unusual points visible and trackable.
One of the undoubted advantages of using BI tools in M&A is the ability to rapidly amend data processing in order to absorb new units in your business framework smoothly.
Above all, at the post-deal stage, BI helps you analyze the corporate cultures of both organizations to blend them appropriately. It’s not referred though to some abstract culture but as particular manifestations of it. Business Intelligence allows you to unveil the difference in pay rates or perks systems between the two companies, and thanks to the visualization, evaluate the impact of these parameters on employees.
You can gain even more by combining BI for mergers and acquisitions and machine learning. The last one allows for reducing the workload for the employees of both organizations by automating processes or even helps to cover a staff shortage. According to KPMG, there will be mass adoption of AI in M&A is coming in the next five years, so it’s up to be at the forefront of your industry in the nearest future.
Discover the value you couldn’t even think of
Advanced data analytics fully reveals the professional potential of your employees and provides them with eloquent insights that can significantly impact your business during its M&A journey. Business Intelligence increases your confidence in the deal and influences its cost by giving you a deeper understanding of risk factors and points that drive valuations.
Book a call with our experts to determine how to create a custom BI solution that’ll speed up data processing throughout your M&A initiative.
FAQ
Business Intelligence in mergers and acquisitions is your opportunity to back up your business hunches with facts. The technology protects you from the risk of merging with an untrustworthy organization, entering into an unprofitable deal, and experiencing a post-deal disaster by providing easy-to-grasp dashboards with targeted companies’ relevant KPIs.
Data is used at all the stages of the M&A process: pre-deal, deal, and post-deal. The thing is what information about a company you can access at each stage. At the pre-deal, you can load into your BI system only publicly available data about the targeted companies. During the deal phase, you can ask for some internal company reports to confirm the accuracy of public data. And at the final post-deal stage, you get access to the company’s Big Data.
