Deloitte M&A focus on: Analytics

How technology-driven data is changing deal-making

By Brian Bird, Director, M&A Transaction Services, Deloitte & Touche LLP

Many of those who engage regularly in mergers and acquisitions (M&A) have started to make technology-driven data analytics a critical part of their toolbox, whether in the initial search for potential targets, analysis of financials, or other elements of the due diligence process. Data analytics—the term widely used for technology solutions that help organizations interpret data and analyze business trends—provides a level of sophistication and precision that previously was not available, or available only at great cost in time and money.

Responses from our recent survey, Deloitte M&A Focus On: Analytics, showed that two-thirds (68 percent) of 500 corporate executives surveyed use data analytics as part of their M&A analysis. Sixty-four percent say they have increased the use of analytics somewhat or significantly. Those surveyed were at director level or above and were at firms with at least 10 million dollars in revenue.

Respondents say their use of data analytics has risen steadily in recent years, and more than eight in ten respondents see data analytics becoming increasingly important to M&A activity in coming years. Only 1 percent of respondents said they’ve used data analytics less than they have previously.

Our survey shows that 40 percent of respondents view data analytics as a “core component” of M&A analysis; another 28 percent say it is used in “select areas” of analysis. Of those 21 percent not currently using M&A data analysis, nearly half said they are considering it.

The likelihood of using data analytics appears to be closely correlated with firm size; 58 percent of firms 5 billion dollars and up use it as a core component of M&A analysis, while only 29 percent of firms at $50m–250m do.

Part of the reason for the increase in interest is availability: Data sets are now often richer and more detailed, providing greater and more up-to-date views into companies, both public and private, on a global basis. An acquiring company can now screen for targets using a broad array of potential sources of information, and once those potential targets are identified, can dive deeper into the company’s financials to arrive at a valuation.

But data analytics is not just about running data sets through sophisticated analytics software. In all cases, it requires a strategic approach and qualified teams to conduct and manage the process.

What’s more, data analytics includes careful and energy-intensive reviews of social media and other digital economy indicators. Tracking the metrics of a business in social media and other digital economy channels provides color—and sometimes major insights—that can significantly impact the valuation of a deal.

Our view is that data analytics is an essential tool. Board members and investors increasingly expect it as part of the strategic review of a potential transaction.

The reason is simple: Expert deployment of data analytics can raise confidence levels on transactions; it can confirm suspicions about the direction of a business, help provide a better sense of factors that drive valuations, and help deepen awareness of risk factors. For example, the greatest application of data analytics is in the analysis of customers and markets; of those companies who have used data analytics, 64 percent said they used it for that purpose—the most frequent application.

Having a data analytics advantage can help a buyer see the story behind the numbers, understanding the target at a much more granular level. For example, we have seen acquirers use social media metrics to track consumer attitudes about a company in a far more sophisticated and market-sensitive way than they have in the past. Or, the careful use of data analytics has helped an acquirer gain a richer sense of how a business was operating, quarter-to-quarter. The outcome invariably is a transaction where the buyer is often more likely to integrate the asset successfully and manage it for growth.

The pool of potential data is enormous and growing each day, and those surveyed show a willingness to analyze both structured data and unstructured data. The advantages of structured data are well-known; but those data sets can sometimes be difficult to acquire. Unstructured data—especially data that comes from open sources like social media, but also tables, text files, images of documents—requires more upfront effort to collect, interpret and manage, but are often revealing.

The fact that data analytics is on the cusp of transforming the deal-making landscape shouldn’t be surprising; players in many industries say they expect data analytics to have a rising impact. Respondents from health care (86 percent of survey respondents reported that data analytics will become more important in the coming three years), financial services (85 percent), manufacturing (83 percent), retail and distribution (89 percent), energy (90 percent), and technology (86 percent) industries all report that they expect to tap insights buried deep within mountains of data.

What is a critical next step for any organization looking to pursue a transaction? To deploy data analytics for their most powerful and impactful end-use. In the coming weeks, we will explore how data analytics is changing the way deals are evaluated and executed, and how data analytics can help bring higher levels of confidence to each transaction.

Want to see the full survey?

The full survey results can be found on Slideshare.

Don't miss the other articles in this three-part series:

• How data shapes post-deal details
• Building versus buying M&A analytics capabilities