The M/A Due Diligence Process is Broken, According to New Axiom and Raconteur Report.
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10 May 2017 - Seventy to ninety percent of merger and acquisition activity fails to achieve its goals. These failings are primarily due to the de-prioritization of deal integration and due diligence analysis, according to a new report from US-based legal, contracts, and compliance solutions provider Axiom and content firm Raconteur.
In-house lawyers understand these pre- and post-deal pitfalls, and are eager to affect change, but do not feel empowered to do so. Instead, they feel confined to due diligence box-ticking exercises, which add limited value to deal outcomes.
These are the findings from The Deal Machine: M/A 2017, released at The 2017 Corporate Legal Operations Consortium Institute by alternative legal services provider Axiom, in conjunction with Raconteur.
The Deal Machine examines how companies engaged in Mand A activity can gain competitive advantages by taking a different approach to due diligence and integration activities.
This report is based on a survey of 300 respondents (representing legal and commercial functions) from global companies with annual revenue ranging from USD 1bn to more than USD 16bn.
Legal departments cite lack of integration as the number one reason deals fail (according to 58% of respondents), while also acknowledging that they are providing inadequate value to downstream teams focusing on integration synergies.
In fact, over 85% of the lawyers rank issues related to the quality of due diligence, integration or the misalignment between those processes as the number one or two area where they could do better.
Specific to diligence, 79% of respondents feel that input from the due diligence process isn't effective in achieving deal synergies during integration, and 78% of respondents believe that M/A value would increase if due diligence were approached more strategically.
The notion that integration is devalued is further emphasized by the fact that only 35% of respondent companies have a standardized integration team.
The survey findings revealed two distinct areas hurting deal success: a lack of clear information (cited by 81% of respondents as a major challenge for the legal department within M/A transactions) and an absence of standardization (cited by 70%). On the former point, findings suggest that the information in-house lawyers need in order to execute a deal is not readily available.
To note, only 21% of respondents felt they received useful, data-driven insights that enhanced the integration process.
As to the latter, the survey found that even some of the most active deal-making companies do not have a standardized deal playbook and are not leveraging best practices.
Among companies that do more than two deals per year, almost 60% feel their processes are inadequate, despite recognition of the critical role standardization plays in M/A.
The Deal Machine's findings reveal that technology and data are under-utilized M/A resources, even though in-house teams have clear ideas about how tech should be used.
Twenty-two percent of lawyers cite achieving enterprise targets through data alignment/output as their number one technology priority. (The number from organizations doing 10+ deals a year is even higher, at 80%). This was closely followed by technology capable of analysing key contract data, cited by 21% of respondents.
More than technology, however, respondents cite a significant need for capacity and expertise. The Deal Machine discovered that some 64% of respondents feel they do not have enough people to realise their Mand A aspirations, while 61% said they don't have the right quality of people to do so.
Axiom provides tech-enabled legal, contracts, and compliance solutions for large enterprises.
The firm comprises 2,000 lawyers, professionals, process engineers and technologists who serve over half the Fortune 100 across 15 regions and 3 centres of excellence globally.
Raconteur Media is a publishing house and content marketing agency. Raconteur produces special reports for The Times and The Sunday Times, as well as content marketing solutions for brands and bespoke market research.
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|Publication:||M2 EquityBites (EQB)|
|Date:||May 10, 2017|
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