There is no doubt that technological innovation has impacted the way that corporations interact and do business. Today, technology allows multiple corporate parties in different jurisdictions to communicate, access data, and exchange information instantaneously. In the context of M&A, it is often said that technological advancements such as online data rooms, corporate search services, and information databases have increased the speed at which deals are made. However, beyond these anecdotes, the impacts of technology on corporate transactions is often overlooked and understated. Earlier this month, the Mergermarket Group helped to fill this void by releasing a publication titled Rebooting the Deal Process: How Technology is Changing the Art of M&A (the Report). The Report provides important insight on how technology can enhance value in M&A as well as the risks presented by recent technological trends. The following highlights the main points discussed by the contributors to the Report.
Higher reward: enhanced value in M&A
According to the Report, there are a number of ways in which new technologies have added value to the deal-making process. For instance, the Report points out that the amount of information that is now available on past corporate deals provides guidance to negotiating parties when structuring agreements and helps avoid disputes. Put differently, access to information gives parties insight on industry trends and helps narrow the gap on divisive issues. For example, access to financial data helps parties identify agreeable prices and avoid valuation gaps. The proliferation of information technology has also served to level the playing field between the largest and smallest firms. To a large extent, all negotiating parties have access to the same information regardless of their size of financial resources. More generally, information and communication technologies have increased the speed of M&A negotiations and allow for more timely and informed decision making.
In addition to the above, the contributors to the Report point out that technology has also helped create a more efficient and open marketplace for M&A. The ability to send information electronically around the world has enabled buyers and sellers to connect more effectively than was previously possible. Sellers now have the ability to identify and communicate with interested parties around the world without having to engage third parties or incur sizable expenses. On the other hand, buyers are able to identify target companies and solicit offers in a more timely manner. These forces have in turn increased competition and contributed to a more vibrant M&A market.
Higher risk: challenges presented by the use of technology in M&A
Although the use of technology presents a number of benefits in the context of M&A, the Report also notes that increased reliance on technology presents a number of risks. For instance, the electronic exchange of corporate information and the use of data rooms for due diligence raises the important issue of data leakage. Whether it be hackers attempting to steal corporate data, reporters trying to obtain information on a pending transaction, or online activists seeking to expose corporate dealings, the use of technology to exchange and store data comes with the risk that this data will fall into the wrong hands. This risk is particularly pronounced for publically traded corporations and other companies with prominent public profiles. According to the Report, the risk of data leakage will impose costs on companies involved in M&A in the form of improved data monitoring and infrastructure. However, the risk of data leakage also poses a challenge to regulatory agencies. When it comes to issues such as insider trading and protecting consumer information, the contributors note that regulators must ensure that compliance requirements keep pace with technological innovation.
Limits of technology: the human aspect of M&A
Although technological change is inevitable and the use of technology in M&A is bound to increase, the Report highlights that technology has limits. Some of the contributors to the Report expressed the view that there is a distinctly human aspect of deal making. Although it is increasingly rare for parties to sit in a boardroom and negotiate every aspect of a deal, the act of negotiating in person has the effect of humanizing the transaction. Negotiating in person can help buyers and sellers identify the other side’s true interests and priorities and thereby facilitate deal making. At a more fundamental level, personal negotiations can help build trust between parties to a transaction and avoid future disagreement and conflict. While a return to personal negotiations is improbable and in many was undesirable, it remains to be seen if technology can replace the handshake and the other distinctly human elements of M&A.
The author would like to thank Jonathan Preece, aritcling student, for his assistance in preparing this legal update.