At its core, M&A in the middle market is largely about two or more parties aligning around business and deal concepts in a time frame that meets the goals of each. Usually, this alignment comes about because of analysis, communications, and relationships enabled by trust, confidence, and capital. Technology can be used to manage and support the deal process to bring about this alignment by improving the efficiency and timeliness of the process with fewer mistakes and greater clarity for both parties. For M&A, software solutions and technology applications range in function from planning and improving the realizable value of a company to planning the M&A process and then collaborating throughout; identifying targets (both buyers and sellers); valuing the business; sharing the business case and opportunity; enabling secure file and data sharing; conducting due diligence; improving and enhancing communication; negotiating definitive documents; and finally, working through the mechanics of closing. To facilitate the discussion of these solutions, we have identified seven broad categories to define the evolving landscape. Figure 10.1 provides a framework and context to visualize those topic areas and to share examples of solutions by name that fall within each.^a No doubt, some of these applications may be used in multiple categories and cross over each other depending on the actual project. In this chapter, we will review the use of technology in the M&A process and link the categories and applications to the typical sequence in executing a deal.

VIRTUAL DATA ROOM

Except for Microsoft Office and the like, the earliest applications of cloud computing and related technologies for M&A in the middle market were deployed to virtualize and somewhat automate data rooms; thus, the name virtual data room or VDR, although sometimes it may be referred to as an electronic data room. Before the VDR, a data room was literally a physical room with binders, files, papers, and documents organized so that a buyer could review and audit the information about a target company. And usually there would be access to only one buyer during a scheduled timeslot. As you can imagine, and have likely experienced, the VDR has vastly improved the efficiency and speed of controlling and sharing information among the parties involved in many of the steps in the buying and selling of companies. The VDR is core to the use of technology in the M&A process, allowing all parties to safely and easily review and exchange documents. It increases accessibility, availability, and security in the exchange of information. Security and access control are critical and fundamental elements of any application being used as a virtual data room.

The complexity and features of the VDR vary depending on the software provider. Implementations can range from basic file folders in a generic online file storage or sharing system to purpose‐built VDR applications that provide features like file organization and hierarchy management, file‐level access control, quick view, view‐only, water marking, user tracking, file check‐in/‐out, notices of access and movement, advanced search, remote shredding, inline Q&A, redaction, and integration with other systems.

How the VDR is used and what functions are required are directly related to the nature of the transaction process being run. As mentioned in Chapter 7, there are various M&A processes like a negotiated sale, limited auction, and broad auction. Within each of these, there can be levels of disclosure and informational depth shared to facilitate the process and the evaluation of the opportunity: for initial evaluation, exploratory due diligence, specific buyer questions and answers, confirmatory due diligence, and exchange and negotiations of definitive documents. Each of these steps coupled with the actual dynamics of a specific deal will dictate the use and application of technology.

MARKET INSIGHT AND DATA

As technology has become more prevalent in business, buyers and sellers have come to expect more data and information about a target, its industry, and the ecosystem in which it operates. Solid and defensible internal data coupled with external comparable information tends to instill confidence that the buyer or seller knows their business, and provides supporting information to enable the parties to act decisively (if they want to). Each step of the M&A process usually can be underwritten with data and information to focus and inform the parties and to provide context and set expectations for what is termed “market” … all providing the backdrop for negotiating a deal.

While not exhaustive, Table 10.1 outlines many of the information requirements needed throughout the M&A process.^b

In this section, we categorize the main types and sources used to provide the data and information listed in Table 10.1.

• Transaction data sources and information for middle market deals is limited and requires a fair amount of investigation and digging to sort through, synthesize, and discern what is relevant and applicable to a particular target. Gaining an understanding of each transaction database in the market and its sources is key to choosing the data points to include in an analysis. The robustness and completeness of a data set depends on the parties involved. For instance, a number of data sources extract transaction information from SEC filings where public companies have made acquisitions. Some private equity funds report select information about their transactions, and some intermediaries report the same. Who they report to depends on their relationships and reciprocal agreements. Many of the data aggregators have teams that monitor and scour media, then compile profiles based on disparate information sources. The end result is a patchwork of transaction information that may include names of the parties involved in the transaction, closing date, revenue of the target, implied valuation multiples (i.e., EBITDA and revenue multiples), operating metrics and margins of the target company, and the nature of the consideration (e.g., mix of cash, stock, earnout, etc.). Based on the disparate sources and private nature of the companies, this data may or may not be 100% accurate, but is likely the best that is publicly available. There are several valuation and deal‐structure transaction data providers that have highly curated information based on known or reliable sources.

  	Purpose	Type of Information
  1	Expected market value of the target company	Market segment trends and data Financial performance benchmarks Comparable companies and transaction data
  2	Market position of the target company and growth opportunity	Market research report with sizing and industry trends List of competitors with statistics List of industry transactions with statistics
  3	Buyer target list	List of operating companies with relevant descriptions and contacts List of financial buyers with names of similar investments and contacts
  4	Seller target list (for acquisitions)	List of operating companies with relevant descriptions and contacts List of funding sources with contacts
  5	Due diligence and negotiations of the terms and conditions	Deal terms statistics Customer feedback and sentiment trends Comparable deal fees

  Some databases list both individual transaction data and aggregated transaction data to provide advisors the broadest range of perspective for their individual situation. There exists some overlap between transaction‐related market insights and transaction data, and some companies offer both on the same platform. But they are clearly distinguished—market insights show analysis, trends, projections, and aggregated results, whereas transaction data show detailed information about actual deals that have closed or been announced. To augment an M&A advisor's workflow, some data sources have desktop tools that link to their application to increase the ease and speed of use.

• Company information can be obtained from many data sources. There exist databases that have information about almost every company in a country, aggregating public and private information into one system. These sources have many uses, including generation of buyer and seller lists for the M&A process. They tend to include demographic data, description of the company, number of employees and revenues, executive contacts, and the company's SIC or NAICS code. As the company data aggregation business has evolved, some of these data sources have augmented the basic company information with news, social media metrics, lists of similar companies or competitors, and fundraising information. The offering from these company information sources overlaps with the transaction data providers mentioned previously.
• Industry information and market research usually provide information about how a market is defined, its segments, historic and projected growth rates and trends, major participant companies, the level of competitiveness, aggregate productivity, and margin data. This information can be used to frame the landscape in which a target company operates, support growth strategies, identify market adjacencies, and support target company projections. In addition to comprehensive industry reports, there are data providers that aggregate and compile financial statistics based on industry categorizations such as SIC or NAICS code. These statistics can form the basis for benchmarking a target company's performance or identifying areas of possible concern or those in which they excel.
• Competitive intelligence platforms and applications provide information about a company's customers, products, services, competitors, and employees (sometimes). In the context of M&A, competitive intelligence may help identify buyers or sellers. It also can provide insights to better articulate the strategic and market position of a target company. In some cases, competitive intelligence applications use artificial intelligence (AI) and other analytics to explain why a company is succeeding or failing in its marketplace, and to reveal insights that may not be obvious from a traditional analysis. Among numerous ideas, M&A advisors can use competitive intelligence in pitching new clients with insights they may not be aware of; making suggestions to maximize the value of a client company; more tightly connecting the dots between industry trends, investments, and key player actions; and assessing which strategics or sponsors to pursue.

DEAL SOURCING AND EXCHANGES

Deal sourcing and exchanges are presented together because of the process similarities in managing a marketing campaign and technology used to promote the M&A advisor's firm versus to promote a target for sale or the mandate to acquire. For M&A advisors, deal sourcing has two dimensions. The first relates to identifying, tracking, and nurturing a pipeline of potential clients to serve, and the second relates to identifying and engaging with potential targets (buyers or sellers) to pursue as part of the transaction process to acquire or divest. From a technology perspective, the first typically uses some form of CRM (customer relationship management) platform to establish a specific database for the M&A advisor's firm. There are CRM systems tailored specifically for the M&A business, some stand‐alone, and some that operate on top of SalesForce.com.

The second can also use a CRM system, and sometimes is managed with spreadsheets. To augment and extend the outreach process in both cases, and depending on the aims of the process and what type of counterparty is desired for the transaction, there are exchanges and transaction‐posting sites that facilitate sharing of deals. The spectrum of exchanges ranges from simple opportunity‐posting websites (some based on an industry or market) to a sophisticated exchange application focused on the middle market. This system provides the M&A advisor a platform to share deal opportunities securely and confidentially to a curated list of buyers and investors. It enhances the transaction process with tools to automate the exchange of initial documents as well as other features to better manage the introduction of the parties. The other side of this exchange enables private equity groups and corporate acquirers to share their mandates and to be matched with potential targets.

This summary about deal sourcing and exchanges only scratches the surface of the topic. The systems mentioned here are usually part of an overall set of technology tools that the M&A advisor uses to operate their firm and run an efficient deal process. That said, managing the outreach process of any engagement is core and critical to a high‐performing M&A advisor.

DUE DILIGENCE SOFTWARE

The M&A advisor should think of due diligence from at least two perspectives: (1) the basic assessment of a potential client for most any type of M&A or corporate finance transaction, and (2) from a potential buyer's, seller's, lender's, investor's, or insurance company's eyes. We are mentioning corporate finance, lenders, and investors knowing that some acquisition and divestiture transactions involve third‐party financing, and these parties need to be considered when discussing due diligence.

For instance, in the sell‐side process, the M&A advisor will collaborate with the target company's counsel and accountant to initially populate a data room with the basic information. Once a buyer has been identified, they tend to drive what additional information and steps are required to satisfy their acquisition and approval processes to fund and close the transaction. Many M&A advisors use spreadsheets or Word documents to list and organize initial diligence items. Behind the scenes in a sell‐side process, you may find that the more sophisticated buyers are using due diligence tracking systems or platforms like those mentioned in Figure 10.1. Additionally, there are a lot of supporting technologies used because of the breadth of topics and areas of the business covered in both exploratory and confirmatory diligence. As just a sampling of these tools: automated and AI tools to read documents; data aggregation and analysis tools; regulatory databases and compliance; tools to scan, assess, and present publicly available information about a company and its employees; intellectual property breach detection; network security and integrity; employee background checks; and so on … this list could consume several pages of this handbook.

The advancement of technology and software has enabled quicker diligence with more accuracy and insight. AI is expected to play a greater role over the next decade in further accelerating and enhancing due diligence as well as reducing the deal process timeline.

For example, cognitive search platforms use a multitude of natural language understanding techniques to better understand questions and produce precise answers. These platforms connect to many common enterprise data sources, such as collaboration platforms, file systems, and databases; integrate with single sign‐on systems; and provide APIs or tools to build custom search interfaces.¹ In addition, many VDR providers are developing AI solutions for the buy‐side that can automatically review contracts in a data room and identify potentially problematic clauses, such as exclusivities or noncompetes.

PROJECT MANAGEMENT SOFTWARE

Project management is foundational for almost any M&A shop, and it is almost inconceivable that a team would not be using some type of technology to plan and coordinate the process of selling or buying a company. There are several clear advantages to using project management software: presuggested deal templates, relatively low cost, alignment among parties, clear delineation of tasks and obligations, clear prioritization of the most significant milestones, less disturbance to the business (for both buyer and seller), and ease of communication.

Project management software can be incorporated into each step of the M&A process, providing a strong framework for execution. Its most useful functions include templates, work assignments and delegation, reporting, notifications, forms, checklists, and analytics. Some applications automatically update, track, and provide a trail of deal history for auditing purposes.

Project management of a deal has been bolstered with videoconferencing technology that has enabled M&A teams to operate remotely. Zoom, Microsoft Teams, GoToMeeting, and others help participants in the process to gain efficiency and improve collaboration, albeit there is no substitute for in‐person meetings for certain steps like negotiations and solving confrontational problems (or just getting to know each other and developing a sense of trust and confidence among the parties to a transaction).

COMPREHENSIVE M&A SOFTWARE

Comprehensive M&A software (CMS) platforms encompass many of the features offered by discrete solution providers. These systems can be thought of as professional service automation specific to M&A and private capital markets. As with other types of systems, the spectrum of features varies. The general concept is to allow users to manage each step and workflow of the entire deal process within an integrated platform. These software tools can help advisors stay organized by housing all their information in a single place, instead of switching between unintegrated applications meant to perform narrow tasks. Most of these systems combine project management tools with a VDR and deal sourcing. CMS tends to be cheaper than individually purchasing software for each of the many tasks in the M&A process. It is important to fully evaluate a CMS platform to assure that its tools and methods align with the workflows of your firm. Some of these platforms have been developed primarily for the buy‐side and corporate development communities, whereas others more clearly support the M&A advisor leading sell‐side and divestiture projects. A potential drawback of these systems could be their breadth of application without as much depth—as they aim to provide solutions for every step of the process, some of those subsystems may have fewer features or be less optimal than more narrowly defined discrete applications.

SUPPORTING TOOLS

The final category in the M&A framework is comprised of supporting tools, databases, and technologies that aid M&A advisors and those in the deal community with specific point‐solutions. While there are many other point‐solutions that can enhance a deal team's capabilities and efficiency, here are a few examples:

• Target company financial analysis and valuation
• Deal structure optimization and valuation
• Value growth planning and management
• Deal terms benchmarking
• Digital signature and contract management
• Pitchbook creation
• Payments and escrow management
• Capitalization table management

ARTIFICIAL INTELLIGENCE AND TECHNOLOGY TRENDS

We close this chapter reflecting on the application of technology and what advisors and those who are part of the M&A process might expect. To help calibrate our perspective of technology trends and their trajectories we surveyed 37 end users and 15 technology providers,^c all involved with M&A transactions. As mentioned throughout this chapter, the use of AI to enhance and support activities in the M&A process has begun; no doubt the use and adoption of AI is accelerating. Supporting our observations and the survey feedback, we noted that interviews conducted as part of an ICAEW White Paper² found that the use of AI in transactions would be very significant in the future, while the implementation of such AI was still in the early stages. Axial.net's³ analysis, supported by McKinsey's research, suggests that repeatable tasks like buyer list creation, data room preparation, NDA review and execution, and some market research activities are highly susceptible to being automated. But, they suggest, the functions most critical to an M&A advisor's job remain unlikely to be automated. These functions can include training and coaching management ahead of meetings, managing people and emotions, leading the closing processes, and setting and managing expectations with the seller. The advisor's human‐centered capacity to employ judgment remains critical to client and process success. It is important for advisors to focus on the functions of the job that AI and technologies cannot replace, namely relationship management and qualitative judgments about data.

From our surveys and research, we gleaned the following themes, feedback, and expected trends over the next three to five years:

• Enhanced selection of engagements and mandates by M&A advisors
• More tightly integrated software and applications with application programming interface (API) connectivity and the migration of stand‐alone applications to the cloud
• Heightened ability using AI in due diligence to identify red flags and opportunities
• Greater access to data and information for the lower‐middle market, enabling small M&A shops to have the same sophistication as bulge‐bracket firms
• Improved information quality and accessibility; better target company data
• Continued improvement and focus on data, documentation, and cybersecurity in the M&A process
• Emergence of deal benchmarking products that take very robust deal‐level metrics from private fund data; having applicability to both buyers and sellers
• More robust sources of relationship intelligence and behavioral and reputation data
• Continued process improvement, including more virtual capabilities
• Improving the pool of higher‐quality target companies as businesses and their management implement technology and become more sophisticated
• Reduced deal preparation time, transaction time, and deal risk, all coupled with increased deal competition

For many, there is excitement and opportunity to leverage technologies in the M&A process—from the sell‐side, the opportunity to increase close rates, improve service and do more deals; from the buy‐side, the ability to find and filter in the ideal target, and then to gain alignment to set the stage for a successful acquisition and integration, all with greater precision, ease, and timeliness. Regardless of the type and objective of the transaction, keep in mind that technology can only enhance, not replace, the relationships required to be successful in doing deals; technology cannot replace the human interaction that leads to trust and confidence.

TECHNOLOGY PROVIDERS

Following is a list of some of the companies that provided feedback via our technology provider survey and questionnaire, sharing their insights and experience to help shape this chapter.