Technology in M&A: Time for advisers to learn to swim in the internet age and stop clinging to those black books?
05 July, 2011
Technology can appear threatening to traditional work practices and the very need for certain jobs. An understandable defensive reaction is often provoked. This has been true through history starting with the machine-wrecking Luddites of the 19th Century. There is a pattern to the adoption of new technology which is often ultimately liberating and empowering. On the way to acceptance it has to pass through various evolutionary stages which move the perception of the technology from the category of threat to that of competitive advantage.
The power of the internet to bring together two parties with a common interest, is a given. It has become common practice for cars, houses, holidays, relationships and more. It is increasingly being adopted in more commercial and professional applications, but each time it must answer the legitimate concerns of the industry concerned. These typically relate to confidentiality, control, prevention of misuse and so forth. Rightmove has changed the way the estate agency market operates. Monster has done the same for recruitment.
The mergers and acquisitions industry has not been Luddite. It has been prepared to adopt all types of information and search services to support its efforts to identify likely buyers. But the process is stressed by the need to go ever further afield to new markets and to new buyers with no M&A record. The traditional tools all suffer from predictable issues. They are out of date. The previous history is no reliable guide to future plans. They do not work well in new industries and emerging geographies. They do not help to contact the right person quickly.
Part of the value of an advisor is their knowledge of and access to the likely buyer universe. The jealously guarded “black books” which contain all the arcane and proprietary information. The chances of accuracy and completeness are assisted by previous experience in the industry. However, experience can lead to a loss of curiosity and an unwarranted self-belief. The urgency of the search for new names gives way to the list of “usual suspects” representing the known market. The desire to go looking further afield for outliers and in remote geographies, just does not seem worth the effort. The usual suspects will anyway yield a buyer in most cases.
Going wider has its dangers. The constant tension between adding more names and the risk of a leak. But there is always that nagging feeling that a really good buyer went undiscovered or unnoticed. The work of identifying non-obvious buyers would be much simpler if they could make themselves more noticeable. Instead of relying on search engines and historic information you could go straight to the prime source: what buyers say they want to do.
Nobody had challenged the orthodoxy that M&A had to be secretive and deny itself the connecting power of the internet available to almost everyone else. The basic technology existed. All that was required was a way of adapting it the very special requirements of the M&A market. MergerID has now achieved that. It has safely harnessed the connecting power of the internet in a controlled membership environment, with proprietary intelligent matching technology. Counter-intuitively, it achieves greater secrecy than traditional calls and emails can deliver.
Technology can be a leveler, forcing the market to focus on other ways of differentiation. Even the most humble boutique can have access to information that was the preserve of huge banks only a few years ago. This can be a force for good. Advisers can focus on the relationship and the parts of the transaction when they are critically important to the success. Timing, structuring and negotiation all spring to mind. The key question is to distinguish between technology and skill.
The same tension is apparent in top end racing. In an ideal world all Formula 1 drivers would have the same vehicle and all M&A advisors would start with the same buyer list. They could then demonstrate their true individual skill and judgement.
The mystique maintained by advisers about the buyer universe (the black books) is increasingly commoditised. If a better way of doing something comes along it should be adopted, performance will improve as everyone catches up, and the differentiator will once again be individual skill and judgement, as it should be.
Starting with the correct buyer list is a fundamental part of a good M&A sale process. Anything that helps with the identification of buyers, particularly unlikely or outlier ones, is to be welcomed. It is not a threat. There is no embarrassment in using it, or even admitting that you are using it. A confident advisor will always say that the value of the service is the skill and judgement of the advisor in the critical moments.
That is perhaps why MergerID has been so readily adopted by the M&A market, among both professionals and principals. It is a true game-changer in the M&A market by connecting decision-makers at the buyer and seller around sale mandates and genuine buyer requirements, rather than guesswork and speculative interest. It makes a huge widening of the marketing practical and confidential, putting the adviser in an unrivalled seat to make informed judgements about the buyer universe.
The adviser can draw support from a variety of sources, but nothing can take away from the fact that they are still very much in the driving seat. Man as master: technology as servant.
Getting deals done is as complex as ever and requires the integration of a wide range of judgement calls, skills and services.
