Get connected: Keeping up with the digitalisation of due diligence

admincontrol.comGet connected: Keeping up with the digitalisation of due diligence ContentsMethodologyIn Q2 2022, Mergermarket surveyed 100 senior executives to gain insights into the digitalisation of due diligence. The respondents comprised 25 investment banks, 25 law firms and 50 private equity (PE) firms. All are headquartered in Europe (including the UK) and were recently involved on the buy side of an M&A deal. All responses are anonymous, and results are presented in aggregate.Introduction 3A whole new world 5Suite of solutions 8Virtual data rooms 12Perfect partners 14Outlook 19 Get connected: Keeping up with the digitalisation of due diligence3IntroductionThe past two years have reshaped the practicalities of dealmaking for the better. The challenges of transacting remotely during the COVID-19 pandemic accelerated the adoption of technologies that enable both swifter and more judicious deal processes. A higher degree of automation has mitigated previously manual tasks, improved workflows and reduced costs.Today, European dealmakers have more to think about than ever before. From understanding the distortive effect of the pandemic on business, to supply chain performance and the tightening of environmental, social & governance (ESG) regulations, through to navigating changing sanctions connected to Russia’s invasion of Ukraine.Consequently, digital applications are becoming further integrated into the day-to-day workings of due diligence. Most dealmakers who embraced these tools during the pandemic have committed to them for the long term, having come to depend on the benefits of faster, highly analytical tech-enabled M&A transactions that leverage advanced virtual data rooms (VDRs) and analytics.For this study, the second in our series of newsletters in collaboration with Mergermarket, we surveyed 100 senior dealmaking executives across Europe to gain a sense of how they view the benefits of digitalised due diligence, their plans for further adoption and the challenges they have come up against so far.Key findings:1. Almost all respondents (94%) say that digital technologies are important to how they manage M&A due diligence, including 52% who describe them as very important.2. The single most important technology they use during M&A due diligence, according to 29% of respondents, is ‘Big Data’ analytics, followed closely by VDRs (26%). 3. The two biggest obstacles to integrating innovative technology solutions into respondents’ M&A due diligence practices are getting sufficiently comfortable with the new technology (24%) and insufficient in-house technology expertise (18%).4. Half of all respondents say they mostly outsource their due diligence processes and related technologies, and a further 30% reveal that they entirely outsource these processes.5. The most important qualities that respondents look for in their third-party collaborators are cutting-edge technology (56% of top-three votes) and availability (54% of top-three votes). Get connected: Keeping up with the digitalisation of due diligence5A whole new world The pandemic supercharged the digitalisation of M&A, and organisations that invested in and upgraded their due diligence technology solutions are enjoying the rewardsNow more than ever, digital technologies are a critical ingredient in M&A due diligence. Artificial intelligence (AI) is being integrated into VDRs to review large volumes of documents rapidly in a secure, access-managed online environment. These tools can be applied in almost limitless ways and are not reserved for foundational legal or financial diligence processes.Software can be used to analyse everything from a business’s cybersecurity standards and assets through to their compliance with shifting regulations, or benchmarking against emerging ESG indicators. Building an accurate picture of what is truly happening within a target company has never been more important in light of today’s macroeconomic environment. Companies are having to manage frayed value chains and unprecedented supply/demand imbalances, inflation and rising financing costs as interest rates rise. All of this is destabilising and makes it more difficult for investors to develop a clear picture of a company’s performance.As Mari Nygård, head of data rooms at Admincontrol, explains, digital diligence tools help bidders to make swifter, more confident decisions: “As decision-makers are becoming more aware of the rising cyber risks, they are also getting more conscious about choosing solutions with embedded security by design, not only being secure but also promoting secure practices. The assurance that their data is protected at every step gives our customers peace of mind.”This is borne out in our research. Almost all respondents (94%) say these technologies are important to the way in which their Very importantImportantNeither important nor unimportant52%40%52%58%8%3%13%34%8%40%8%60%0%42%6%TotalPrivate equity firmLaw firmInvestment bankHow import