Five Changes to Due Diligence to Expect in the Next Five Years

Due diligence, the start of the end whereby a business is scrutinised by a prospective buyer to establish its assets and liabilities and evaluate its commercial potential before purchase. Unfortunately, it is very time intensive and can make or break an M&A deal.

Thankfully, due diligence has evolved and improved, largely due to advances in technology and digitisation, helping those undertaking due diligence avoid physical data rooms and huge volumes of paper documents, instead using sophisticated, intelligent virtual data rooms, complete with digital content libraries and access to automated analytic reporting.

This has led to greater speed, simplicity and security across the entire process, enabling practitioners to close deals faster.

However, it is still a frustrating process, so is it possible that due diligence could become more efficient than it has in the past? Could technology transform due diligence? And what other factors could impact the process in the next five years?

A study by Merrill Corporation surveyed global M&A practitioners on all sides of a deal, to see how they viewed the future of due diligence:

 

1. Greater security expected: Most EMEA practitioners (63%) believe new technologies will enable greater security in the due diligence process over the next five years, followed closely by enabling greater analytical capability (61%) and simplifying the entire process (45%).

 

2. Expanding teams supported by technology: Overall, 50% of practitioners expect the use of technology in due diligence to moderately or significantly increase the number of people involved in a transaction over the next five years. Some 31% expect the number to stay about the same, and the remainder (20%) expect this number to decrease.

 

3. AI and analytics offer the greatest promise: Most practitioners (46%) believe AI and machine learning technologies have the greatest potential to transform due diligence over the long-term, followed by data analytics (37%) and blockchain technology (17%).

 

4. Increasingly swift due diligence: Overall, 78% of practitioners say due diligence – from sourcing a deal to deal completion – will take less than three months on average by 2022, up from 64% expecting this improvement in 2018.

 

5. Compliance and regulation will impact the process: Most practitioners (66%) believe the EU’s General Data Protection Regulation (GDPR) will increase acquirers’ scrutiny of the data protection policies and processes of target companies. However, 22% of practitioners believe it will have no impact on the due diligence process at all.

 

Despite predictions that due diligence will improve and become more efficient over the next five years, accessing, gathering, verifying and reviewing documents, information and data continue to slow the due diligence process the most because of the increasing amounts of documentation required in the process. Therefore, strategy, planning and communication during the due diligence process still remains key.

 

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