The strategic use of technology to control M&A costs

Alastair Molyneux, legal consultant at Kroll Ontrack, and Gustaf Duhs, head of competition and regulatory at Stevens & Bolton, look at how technology can reduce data volumes, target key data more quickly, and reduce the time and cost of reviewing it in M&A deals.

Despite a tough economic backdrop, companies in Europe have retained a positive external outlook and are finding ways to protect and grow their business through differentiation, new market share and increased margins.

Growth through mergers and acquisitions, either locally or cross-border, to enter a market or acquire innovation capability has been on the rise over the last twelve months.

Research from Thomson Reuters confirms that this market is gaining momentum, with global domestic M&A deal value reaching $976 billion in the first half year of 2013, representing a 6 per cent increase on the same period in 2012.

Due diligence

Business acquisitions typically involve the up-front review of deal-related information, sometimes by several potential buyers.  This due diligence and pre-merger investigation before the deal is done is imperative to ensure that the potential business deal is financially sound, with risks declared and representations deemed to be fair and accurate. Typically this will involve the business reviewing and analysing its electronically stored information (ESI) and that of the company that it is planning to merge with or acquire.

Knowing what to look for and how to find it in the records is the key to an effective due diligence exercise and investigation. Technology plays a vital part in managing this process effectively and efficiently, ensuring that risks due to, for example, bribery, corruption and anti-competitive behaviour are reduced.  

Due diligence can encompass a number of areas: financial due diligence, analysis of the market and insight into how the acquisition target’s financial ratios compare with industry averages, operational due diligence identifying and ensuring synergy between entities and legal due diligence, checking that taxes and legal affairs are in order in relation to contracts and intellectual property.

It is often at this point that businesses become aware of the vast amount of data that needs to be provided and researched.

Virtual data rooms have traditionally been and remain an efficient method in these instances to make data available.  Many organisations are now however taking due diligence a step further by using a more comprehensive toolset traditionally used in e-disclosure exercises in litigation in order to gather, filter and review data.  

This is, for example, prudent where the company being acquired has had dealings in markets that have been the subject of anti-competitive behaviour or if the company operates in countries that tend to have higher levels of corruption and/or bribery.

The role of technology

Whilst in Europe e-disclosure technology has historically been used by litigators and regulatory lawyers to help parties, collate, cull, analyse and review large volumes of documentation for disclosure or production purposes – the same technology can be applied in a M&A context both in due diligence investigations and to comply with merger control regulations.

By employing this strategic use of technology in a positive, proactive way, businesses can reduce data volumes, target key data more quickly, and reduce the time and cost of reviewing it. Advanced functionality such as ‘data analytics’ can be utilised to better understand patterns of behaviour and uncover potential areas of concern.  Technology Assisted Review can also be used now to learn from human reviewers and partially automate the review process, with significant cost savings.

Additionally, technology can help identify ‘personal data’ protected under EU data privacy laws, therefore avoiding exposure to sanctions for breaching these laws. These risks can be reduced further by allowing forensic experts to collect the data in a targeted way, and undertaking in country data filtering and review using a mobile or in-house solution.

More on UK M&A:

Merger control

US companies are already making extensive use of such technology to comply with the Department of Justice (DOJ) or the Federal Trade Commission (FTC) requirements in relation to merger control.  There is often a substantial volume of documentation that needs to be reviewed and analysed during the pre-merger process.

In Europe it is the European Union Merger Regulation (“EUMR”) that sets out when the European Commission should be notified. When a concentration involves two businesses having an EU wide turnover of €100 million, careful assessment against the EUMR notification thresholds is required. Below that threshold national merger filings in one or more member states may be required.

Gathering the information required for notifications and responses to requests for further information can be an onerous task. The short overall time limits during the first phase adds urgency to the process of producing the information requested, and information provided at this stage can be critical to getting the deal cleared. These situations are ideally suited to the use of technology which is able to prioritise relevant material.

Once the initial information has been reviewed, normally within 25 days in the case of the European Commission, a decision on whether to refer the merger for in-depth (phase two) investigation may be made. The time periods to respond at phase two might be longer but the scope of the information requested tends to be greater as a more in-depth and data-intensive investigation is carried out by the authorities. Technology can again play a pivotal role in identifying relevant information.

The keys to success

Given the various challenges faced throughout the pre-merger process it is essential that an appropriate plan and process for handling information is defined. Technology should be considered from the very start in order for costs to be controlled during the M&A process, fines to be avoided and successful transactions to be realised.

Hunter Ruthven

Hunter Ruthven

Hunter was the Editor for from 2012 to 2014, before moving on to Caspian Media Ltd to be Editor of Real Business.

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