Using AI technology to execute a serial acquisition strategy

Why is this important?

To build a successful rollup, experienced dealmakers need to develop and operate a scalable, repeatable M&A playbook that includes due diligence. In fact, due diligence tends to be one of the most expensive stages in a dealmaking process, costing anywhere between $50K and $200K+ per acquisition, depending on the deal size.

While M&A activity has been waning since the highs experienced in 2021, many think it may have finally hit rock-bottom, with the only way up. At Datasite, sale kick-offs were up 13 percent this summer, signaling a busier time ahead, especially in the low-to-mid market. Moreover, there has been a perceived shift from a seller’s market to a buyer’s market in the UK, due to reduced competition for assets due to higher costs or capital, tighter credit conditions, and macro-economic uncertainties.

Therefore, it could be argued that due diligence takes on even greater importance right now to get these deals done. Especially as inefficient due diligence may result not only in poor decision-making and failed investments but also in cost overrun. So how can dealmakers avoid these issues?

Use M&A technology to optimize and accelerate the process

Our discussions with serial acquirer companies and Rollup Europe founders have highlighted several advantages that technology can bring to the M&A process.

Software rollups and serial acquirers are increasingly targeting a large number of smaller acquisitions within the $2-15M EV range. Given the modest size of these targets, sellers, for whom M&A is usually a one-time-only transaction, often opt to hire a banker who selects their data room of choice; alternatively, sellers may resort to basic over-the-counter file-sharing systems. However, these approaches inevitably lead to increased costs for the acquirer as well as security and compliance risks.

Using over-the-counter file storage systems can be costly and inefficient. While hosting files on these services might seem attractive, such data rooms lack essential tracking features, audit trails, and other necessary functionalities.

Cases have also shown that legal bills for acquirers can significantly increase with these systems, as lawyers spend billable hours searching for files and redacting data. Moreover, security and compliance could be at risk if the data room provider is not committed to the highest standards, increasing not only potential monetary costs but also reputational costs to the user.

AI-enabled M&A technology like Datasite addresses these issues head-on. Built on insights from actual dealmakers, it allows users to streamline deal preparation, conduct smart searches, seamlessly collaborate among multiple teams and parties, flag issues in real time, and handle all Q&A in one place. Also, customizable dashboards for specific users or workstreams provide insight into progress and outstanding issues and challenges.

Streamline and manage due diligence Q&A efficiently to maximize outcomes

Acquirers often create separate spreadsheets for internal use and for lawyers, tax advisors, and others, leading to disjointed Q&A sessions. Furthermore, tracking responses received via email becomes arduous.

Using M&A technology to streamline and manage the Q&A process can help dealmakers communicate more efficiently, allowing them to quickly find and address answers to common questions from multiple parties, and ultimately save time and know which buyers and investors to focus on.

Learn to love data rooms

When sell-side brokers are involved, serial acquirers often encounter variations in data rooms, each demanding different logins and access permissions. This necessitates individualized decisions for each deal.

Having your own data room enables acquirers to standardize folder structures and access rights for all deals. With a consistent interface, both internal and external teams supporting due diligence can operate more efficiently. Furthermore, dealmakers can track the progress of various due diligence workstreams and take action where needed. In this way, it is much easier to scale from 4-5 acquisitions per year to 10+.

In some cases, sellers and their brokers may be reluctant to allow acquirers to host data. However, assuming the acquirer’s credibility, such concerns are often unfounded. To address this, an agreement can be reached at the LOI phase, even included in the LOI itself. For example, the acquirer can draft the following clause:

*Always consult with qualified lawyers to review and modify LOIs.

Learn more about how AI technology can help you execute a successful serial acquisition M&A strategy: CLICK HERE.

TL;DR

• Serial acquirers require a scalable M&A playbook, including efficient due diligence processes.

• Having a quality data room is crucial; public file storage systems or over-the-counter solutions, while convenient, can result in significant hidden legal fees and security and compliance risks

• A buy-side data room with AI technology can enhance the acquisition process, enabling more deals while simplifying due diligence for internal teams and advisors, saving $$ in due diligence costs.