When Will The Business of M&A Finally Turn to Technology?
2 June 2017
In the financial sector, the securities trading processes of today barely resemble those of 25 years ago, thanks to automation. The trading floors that depended on boisterous people making verbal deals have gone quiet, as computerized trading driven by algorithms has overtaken the hand signals and shouts of the years past.
We certainly can’t say the same for adoption of enabling technology in the investment banking arena. As an article by Reuters explains, “Conventional wisdom holds that investment banking does not yield itself to automation the way trading does, because it relies so much on personal relationships forged over years of business lunches, rounds of golf and boardroom presentations.”
Maybe automation does go against conventional wisdom. Some investment bankers are suspicious of technology advancements, fearing the new processes could automate them out of a job, rather than seeing how technology could enhance their knowledge and capabilities, and enable outreach to a larger network of buyers and sellers. There are some signs of change, but it’s moving at a snail’s pace.
In my opinion, there are three obvious areas where technology could be a real boon to investment banking:
Buyer Identification – Bankers typically spend years building relationships with potential buyers, both financial and strategic. Barring perhaps a handful of industries, it’s impossible for an M&A banker to really know every buyer in the market – especially when the market is now global. Online networking – the world’s biggest Rolodex – can bring the right people together at the right time to expand everyone’s opportunities. A 2016 survey of more than 700 M&A professionals showed that nearly two-thirds (62%) of dealmakers say that online deal sourcing allows them to identify counterparties they otherwise would not have found.
Information flow – Much of the investment banking workflow still takes place through Excel, PowerPoint and email. Not only do these tools slow the dealmaking process, but they can also put sensitive information at risk of unwanted disclosure. Here are a few areas where information flow could be vastly improved with technology:
Parties involved in a deal email NDAs back and forth dozens of times as they edit and negotiate terms. Sending, sharing and storing files electronically can improve efficiency and security.
Due diligence Q&A process
During the due diligence stage of a deal, many investment banks attempt to field hundreds of buyer questions over email, and then populate the responses in an unwieldy Excel spreadsheet. Sometimes bankers live in Excel for the wrong reasons. It can make some challenges worse. Q&A functions in virtual data rooms (VDRs) are designed to make interactions between buyers and sellers a lot more manageable.
Ad hoc file sharing
Most banks recognize they cannot allow their bankers to use consumer-grade Dropbox-type tools; however, many have not provided a secure and efficient alternative to send and share files electronically. We continue to see email used as the means for sharing large and even sensitive files. Email has file-size limitations and lacks security features like Information Rights Management (IRM) to take information back after it has been shared. When dealing in the world of M&A, the ability to recall information should be top of mind.
Artificial Intelligence (AI) – Some banks are beginning to explore whether tasks like modeling can be more effectively handled by AI. Such tools can read, review and analyze vast amounts of information in mere minutes, thereby expediting knowledge-based activities to improve efficiency, accuracy and performance.
The investment banking industry is ripe for technological process improvement. It will take a few early adopters to show success before the rest of the community crosses the chasm. The questions are how long this transformation will take and who will lead it.
To find out more about how Intralinks supports the business of M&A, click here.
Jack Newton, VP Sales, oversees Intralinks’ Strategic Financials business in the Eastern U.S. Previously he spent three years leading the ANZ business. Since joining Intralinks in January of 2007, Jack has held multiple roles within the sales organization and has been a key member in the development of and go-to-market strategy for Intralinks’ virtual data room and deal sourcing offerings. He holds a Bachelor's degree from Hamilton College.