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How transaction analytics makes dealmaking better

Malinda Gentry

5 minute read 24 Apr 2018

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Strategy and Transactions

As businesses gear themselves for a digital future, transaction analytics is helping firms do better deals, faster.

Technology-driven data analytics is transforming the M&A process for private equity (PE) firms. Insights gained from data can help firms to identify targets, confirm assessments of financial conditions and predict business trends. But it can also provide a window into potential acquisition targets and assist in the execution, speed and integration of deals.

Transaction analytics — data analytics used in transactions — uses company, target and third-party data, along with statistical algorithms and quantitative analysis, to drive better insight and quicker decision-making for mergers, acquisitions and divestitures. From a due diligence perspective, analytics can help potential buyers to identify issues more quickly and to focus the due diligence process, and it can help buyers and sellers close a deal faster.

“Transaction analytics is transforming the deal process by making it a data-driven process from conception to completion,” explains Malinda Gentry, US Transaction Analytics Practice Leader, Ernst & Young LLP.

An accelerating market

Jeff Liu, EY Global Technology Industry Leader, Strategy and Transactions, argues that digital technology will continue to drive much M&A activity. "Digital disruption is not standing still for global economic uncertainty, and neither is global technology M&A.”

“Big data analytics is a perfect example as tech and non-tech companies alike seek new data sources to feed their analytics capabilities, especially where machine learning technologies are involved,” he says. “We expect the waves of M&A and new partnering trends to continue."

Digital disruption is not standing still for global economic uncertainty, and neither is global technology M&A.

Jeff Liu

EY Global Technology Industry Leader

Bill Stoffel, US Private Equity Leader, Ernst & Young LLP, adds that the tremendous amount of available cash in the marketplace is spurring more of this activity. And this is increasing competition for deals, which has shortened due diligence time frames. So today, it’s not unusual for a transaction’s due diligence period to be reduced to just two or three weeks.

“What that means is that you have to have a team that is able to hit all of the key areas that impact value,” Stoffel says. “Hit it hard, hit it quickly and get the right answers as quickly as possible.”

“The two key things that you always encounter on private equity deals, whether it’s buy side or sell side, are really the quality of the data and the speed that things need to get done. The speed has changed significantly, and the window has gotten narrower and narrower as years have passed.”

According to 2016 EY research, 46% of PE executives believe the availability of sufficient granular data is the most important factor in keeping them in an acquisition process. Forty-four percent believe that a lack of confidence in information is the most significant factor that causes a PE firm to reduce its offer or walk away from a deal.

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Better for buyers and sellers

For a buyer, transaction analytics gives focus to the due diligence process, and it also helps prospective buyers to identify any potential issues for discussion in initial conversations. By carrying out thorough analytics on the target, a buyer is quickly armed with detailed, targeted questions in those first rounds of management meetings.

There are also big benefits for sellers, as Gentry points out.

“Transaction analytics allow you to tell your story through data for the business or set of assets you’re selling,” she says. “That’s going to provide management transparency, generate trust and ultimately help you craft a story to open the pool for potential buyers that want to learn more about the business or set of assets you’re selling.”

“Post deal, good transaction analytics can also aid integration,” says Gentry. “Transaction analytics allows you to look at that target’s data and compare that to your corporate data and figure out how you’re going to best drive out those top-line synergies — as well as cost synergies — in an expedited fashion.”

Transaction analytics is transforming the deal process by making it a data-driven process from conception to completion.

Malinda Gentry

US Transaction Analytics Practice Leader

A vital role

Brian Gentile, former Vice President and General Manager at US-based TIBCO Analytics, says that data analytics plays a vital role throughout the deal process, from the required due diligence to realizing synergies post-deal.

“Every merger or acquisition requires a well-thought-out and structured plan, carefully explaining how the deal enhances the company’s core strategy,” he says. “For this to happen, thorough market research, number crunching and due diligence are naturally required, meaning data analytics has a critical role to play while a merger or acquisition is being targeted.”

“Another factor that is often overlooked during M&A is just how quickly data needs to be put to work. What is more important to your business, for example: accessing a richly defined data set for broad analytic use, or getting hold of data quickly?”

A closer look

If companies get their analytics right, it can also provide valuable insights into existing or potential new customers. For example, in a retail deal, data analytics can reveal how customers are segmented, what they’re buying, when they’re buying and the influences on that buying behavior.

“We can also use data analytics to think about a buy-side deal in which you’re acquiring a set of customers,” says Gentry. “To look at that potential target’s customer base, compare it to your own customer base and identify the areas for cross-sell and up-sell help drive out those top-line synergies immediately after close.”

Data analytics touches every aspect of the due diligence process and, done right, it can provide a seamless way to get to the right answers in a quick and timely fashion.

Summary

Analytics is already helping companies find better targets, do quicker deals and capture greater synergies.

About this article

Malinda Gentry

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.