The market for mergers and acquisitions, especially the acquisitions of mid-sized companies, is hardly transparent. You rarely see asking prices and it is easier to break into Fort Knox than to learn the details of successful transactions. For obvious reasons, the privacy of the parties involved is more important than transparency.
The housing market is, in contrast, a different ballgame. When selling a house, any newbie can estimate the proceeds based on publicly available data, including square footage, construction dates, and location. For the sale of a company, this is far more difficult, mostly due to a lack of publicly accessible data. Of course, an M&A specialist can compare the transaction to his/her recent deals, but the variety in deals is far too vast to capture with any one M&A specialist’s data set.
Are you currently involved in an M&A transaction or planning one soon? Are you using data effectively? We would be happy to advise you. Mark Eenink, Partner, Taurus Corporate Finance*, Deventer, Netherlands
Why data is becoming increasingly important in M&A transactions
When valuing companies, we need to look at the value of other companies in the industry or adjacent industries for comparable values. We use the most commonly accepted data collection method, that of Professor Aswath Damodaran of the Stern School of Business at New York University. This includes specific data on the companies, industries, and countries analysed.
We use external data sources to find prospective buyers and sellers. We use online tools such as Pitchbook, Mergermarkets and ARX to determine which companies are active in specific markets and uncover their M&A strategy.
More and more companies are investing in a vendor due diligence process, which includes an assessment of working capital needs determined by audit files and debt. We use purpose-built software to analyse historical trends and the impact on future cash flow.
Counterparties also rely on data to be able to respond effectively in the negotiating process. Various suppliers of virtual data rooms have developed great tools for this purpose.
Investing in data pays off
These tools are paramount in today’s M&A market. It is still possible to advise a company on a transaction or part of a transaction without them but investing in data is critical for a customised approach in which maximum gains are achieved. By way of comparison, completing a merger or acquisition without the benefit of data is like driving to an unfamiliar destination without GPS.
For further information please contact:
Mark Eenink, Partner, Taurus Corporate Finance*, Deventer, Netherlands