Deal advisory can sometimes feel a bit like detective work, the clues just happen to be buried in accounts, rather than under fingerprint dust.
On a recent local deal, we knew that the target business was suffering. Its margins were nowhere near where they should have been and it was not clear where the proverbial blood was coming from. Trying to convince a buyer to take a leap of faith without that knowledge is unthinkable.
In years gone by, the sleuthing would have taken a considerable amount of time, laboriously trawling through records and speaking to people throughout an organisation to try and build a picture of what might be happening. However, the advent of data analytics or, I should note, the ongoing revolution in society’s use of data, has transformed how we conduct due diligence.
This data revolution is happening at lightning speed and I expect Yorkshire to play an important role in its development well into the future. Our region is home to a vibrant hub of data-rich businesses – from EMIS Health, TPP and SmartSearch to TransUnion, SkyBet and the NHS Digital. The skills we have locally are impressive and it will put the region in good stead as we all immerse ourselves in the opportunities that data analytics can provide.
Safe to say, using advanced technology, coupled with the frighteningly data savvy professionals coming through our ranks, we can crunch vast quantities of information. As a result, we were able to pinpoint a curious geographical and sectoral trend, linked to regulation, that had buffeted profits at certain sites of a national network.
This has all been supported by the emergence of much better data housekeeping – of both system-generated information, but also the enormous pools of offline, unstructured data, like all those Excel and Word documents hiding away on your server. Collating, managing and protecting data is becoming a matter of course for many businesses, not least after the introduction of GDPR regulations.
From a dealmaking perspective, I’ve witnessed a rapid decline in the use of traditional management accounts in due diligence in recent months, let alone years. Their importance in the deal process is diminishing and making way for transactional data, which has been unleashed by new technologies.
This is financial and non-financial micro data that records things like sales and purchase invoices, footfall in certain stores by time and date, or even profit margins on individual items.
I’d go as far to say that half of the deals I’ve worked in over the past 12 months have focused on this type of data set. It is all about harnessing that granular level of information to draw insights on a company’s business model and trends in its market, but also to fix issues and steer future strategy.
Management teams should already be asking themselves – What data do they have? How can I get to it easily? And, most importantly, how can I present it well and learn from it to make better decisions?
These questions are now best practice in due diligence, on both sides of the negotiating table. When trying to sell a business, a vendor needs to consider how data can also provide the evidence to back up their decisions and articulate them to others. For buyers, they want to know where the money is coming from, get right into the guts of any issue – deep in the data – so they can orientate the business properly and make the most out of the acquisition.
This means that conversations during deal processes are less driven by emotion and generalised assumptions, but with facts and reason, supported by quantifiable information. In turn, leading businesses is less about significant changes in strategy and direction and increasingly focused on fine tuning and tweaking business models thanks to highly detailed data sets.
Where does this lead us advisers and the human element of dealmaking? Frankly, there will always be an intangible, gut-feel nature to M&A work. You need experience and intuition to direct the data analytics in the right direction, and then the human brain to interpret the information.
Helpfully, the technology frees us up to spend our time making those difficult decisions, rather than wrestling with spreadsheets.
I’ve always said that what is good for a business, is good for a deal. And, often, what helps get a deal over the line, usually helps out a business too. Data has become a fundamental lynchpin between the two in that reciprocal relationship.
So, if you don’t embrace the data revolution, others will march on regardless to build even better and stronger businesses and pave the way for acquisitions and investment. No one wants to be left in a different era.
Although, for all the hype around technology, at least we can take a break and escape to Yorkshire’s countryside. Dalziel and Pascoe eat your heart out.