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Corporate finance corner: Julien Belon, ARX Corporate Finance

Talya Misiri 25 February 2021

ARX Corporate Finance partner Julien Belon discusses how digital systems and data management tools are transforming PE and M&A deal processes.

What changes that have taken place when it comes to data in the M&A and PE industry? Ten years ago, data in the industry was just made up of databases with no direct or guided intelligence to assist its users.

Since the 2000s, M&A and private equity firms used databases that were linked to publications such as Merger Market and Thomson Reuters. At the time, it was a useful tool for those working in the industry because it helped dealmakers to identify counterparties, buyers, targets or intelligence and to identify the best players in Europe and globally.

Ten years later, more intelligence was introduced to the data, meaning that dealmakers could use databases daily in valuation or counterparty issues. Like a lot of industries, the private equity industry came to understand that data is central to daily work and not just secondary, so they began to use it more and more, both on public databases and with the use of their own CRM platforms to improve their potential dealflow.

CRM tools have allowed firms to link their own deal flow data to data coming from the broader industry. And, this information can be both past and present, which is invaluable.

How have digital data tools improved transaction process?

Digitalisation has essentially made M&A and private equity firms' processes more efficient. As professionals become busier, digitalisation has enabled firms to save time, for data collection employees and analysts, and make transactions much quicker and smoother.

Digitalisation has also assisted with the accuracy of information and allows investors and advisors' go to market to be much quicker. In the next five years, being digitalised in terms of the management of firms’ information, including having a good view on your dealflow and internal data, will be a commodity, thanks to the CRM tools. In addition, to make full use of data, links have been created to and from the CRM with external information on the industry or sectors of interest to assist with processes and intelligence.

And, the CRM can also be used to create industry trends and overview reports; to contact and source buyers and to contact counterparties. This can also be of assistance when meeting deal counterparties to give managers a data-overview beforehand.

What are the benefits of digitalising the deal process? How does this help buyers and sellers?

I used to work at SocGen where I managed the digitalisation of a large part of the small cap industry. Digitalisation is largely beneficial in this area because before this, professionals in the small cap space used to put in the same work as those in the large or mid cap space, but it is not the same profitability and in some cases, small cap can be more complicated, so without digitalisation it could take a lot of time and precious resources.

It’s really important, therefore, for the small cap industry to embrace digitalisation. Banks are also asking us to work with them on this for their small cap businesses because it’s simple but necessary. A lot of retail banks in particular want to use digital tools to manage connections between small businesses and M&A bankers.

Furthermore, for large deals, digitalisation is important to aid the deal process in terms of data monitoring, Q&A sessions, KYC information and the management of data overall.

Where are AI tools being incorporated into the industry?

The industry is starting to use AI-powered tools with the view that it will likely complement databases that are already being used.

Where AI is being used includes the origination process. Where previously a key word would be entered into a database and it will give a small selection of targets in that space. Now, thanks to machine learning, dealmakers have the ability to identify new targets and buyers, in addition to what the database would have provided them with previously. These systems will automatically update with the latest, real-time information to ensure that dealmakers can target the newest opportunities as or before they become available, as well as identifying buyers.

At the moment, the most active investors who are using AI tools are venture capital investors because tech is already a daily working component for them and they have a lot of information to manage in terms of dealflow and opportunities.

Going forward, how will data and digital tools transform the deal origination and execution processes?

Prior to the introduction of digital tools and data management systems, firms could only focus on transactions on a deal by deal basis, due to the intensity of the deal process. Now, digitally assisted investment firms are able to look at more than one deal at a time and have a steady stream of portfolio and potential target information coming through.

Looking forward, digitalisation will assist firms with their profitability, as well as accuracy and efficiency of daily work. CRMs will become a commodity and data held by firms will be extremely more organised and streamlined, so this will also assist with improving deal processes overall.

Categories: Expert Commentaries

TAGS: Artificial Intelligence Private Equity

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