Rusty Wiley is CEO of Datasite, a leading SaaS technology provider for the M&A industry.
Interest rate and regulatory changes. Geopolitical and economic uncertainty. Technological innovation. These are just some of the challenges global businesses are facing today. It’s also why some have expanded their executive teams to focus on managing very specific risks.
Business today is more complex than ever, and approaches to risk management are morphing. Strategies used by mergers and acquisitions (M&A) dealmakers, including applying a framework for decision-making, understanding risk’s role in business and planning for uncontrollable outcomes, can provide a blueprint for the way forward.
Identify And Apply Structure
More than 75% of 400 U.S. and U.K. dealmakers said they had worked on deals where concerns about a target company’s environmental, social and governance (ESG) factors, including sourcing, prevented a deal from happening. This, combined with a decline in sell-side deal closure rates to 46% in 2023 from 51% in 2022, makes completing a deal successfully more challenging.
That’s why dealmakers focus on creating structure, alignment, prioritization and communication when considering how to manage a proposed transaction. Conceptually, this is a linear approach, but decision paths can have almost limitless junctures. Anything that could go wrong needs to be accounted for, which is why dealmakers remain flexible and agile, with the ability to adapt to changing circumstances, all while staying on course to reach the desired outcome.
Use Technology To Work Smarter And Faster
In all phases of M&A, however, technology can help determine the best course of action, as well as provide workflow automation and efficiencies while generating unique data insights. For example, from streamlining business operations to scouting new M&A targets, artificial intelligence (AI) is already impacting M&A by automating repetitive tasks, powering data analysis and easing processes across all phases of a deal.
A 2023 Datasite survey shows most dealmakers see productivity as the biggest benefit of using AI, especially generative AI, in their business. Furthermore, the same survey found that AI has the potential to speed up M&A by up to 50%. This is in addition to the cognitive AI-powered applications that use anonymized private equity and other transaction activity to help dealmakers retrieve better and faster deal pitch targets.
Manage The Uncontrollable
Managing risk in 2024 requires an understanding of this year’s trends, which include mainly U.S. and U.K. political elections, interest rates and inflation. For now, successive interest rate hikes by the Federal Reserve and other central banks have been able to counter rising inflation, which should mean dealmakers can now operate with more certainty. We’re already seeing increased M&A activity at Datasite. For example, in Q4 2023, there was a 14% spike in sell-side deal kickoffs compared to the same period last year. Because these are deals at inception rather than announced, it gives a good idea of what’s ahead in the next six to nine months.
This is likely the beginning of a busy year for M&A, with deal volume potentially set to rise. While positive news for the sector, it also means that dealmakers and business leaders are approaching every deal with a clear understanding of risk management, using an appropriate framework to balance the desired outcomes with possible risk factors. Doing so will allow dealmakers to stay on top of the unfolding trends across local, national and international jurisdictions—and increase the probability of a deal progressing from origination to completion.
Forbes Technology Council is an invitation-only community for world-class CIOs, CTOs and technology executives. Do I qualify?
