DealTech: Deal-Prep Platforms Moderately Bullish on New Year Deal Activity – VDR Insight

What will happen next? Providers of virtual data rooms (VDRs) are taking a moderately bullish stance on deal activity in the New Year.  

Dealmakers typically open a VDR six months or so before the announcement of a deal, which gives VDR platforms a unique perspective on upcoming deal volumes.   

“As we enter the last month of the year, the volume of new VDR growth has been incredibly resilient,” according to SS&C Intralinks co-head Ken Bisconti. Global deal volumes could increase marginally in 1H24, he added.   

Meanwhile, there could be a jump in deal activity just after the Christmas holidays, according to Datasite CEO Rusty Wiley. Wiley pointed to a spike in new VDRs for companies in the industrials sector in June, which indicates that several deals could be announced soon.  

According to Mergermarket's  predictive analytics, one of the top exit candidates in the industrials segment is Advent’s Industria Chimica Emiliana (ICE). The company has a score of 73 out of 100, according to Mergermarket's Likely to Exit (LTE) predictive algorithm.* Sources flagged a sale in October. 

Tougher financing conditions were in the news all year, but global deal volumes in 2023 were broadly in line with recent years, with the exception of the blockbuster year of 2021, Mergermarket data shows.   

The year ended on an upswing, with total volumes of USD 800bn in the fourth quarter. This beat both the third quarter (USD 744bn) and the fourth quarter of 2022 (USD 781bn).  

The largest deal of the year so far was Exxon Mobil’s [NYSE:XOM] all-stock deal to acquire Pioneer Natural Resources [NYSE:PXD] for USD 65.2bn in October. This was one of 31 megadeals in the year with a value north of USD 10bn.    

Datasite CEO Rusty Wiley  

How has the volume of new VDRs on your platform progressed through the second half of 2023 to date?   

Tighter financing costs, market volatility and the long-term impact of COVID have kept announced activity down this year. Valuations haven’t come down as much as anticipated, and deal completion rates on Datasite, which facilitates about 14,000 news deals annually, have dropped from 49% to 45%, year-on-year, thus far in this half. Deals on average are also taking longer to complete. Still, there are green shoots. The number of new deals launched on our platform, globally, are up 6% so far in the second half, year-on-year. As dealmakers rush to conclude deals before year-end, this activity will likely tick up even more.  

Given that it takes an average of six months to close a deal from opening a VDR, what do you think deal volumes will be like in the first half of 2024?   

The fact that the number of new deals on the Datasite platform is up in the second half tells us that there should be increased activity in announced deals in the New Year. From an industry perspective, a spike in new deals in industrials on our platform in June signals that several deals are likely to close soon. Additionally, technology, media and telecoms (TMT) volumes stayed high through summer, signalling a positive indication for early 2024.  

Consumer and healthcare sectors also look healthy for dealmaking, with both sectors witnessing increased deal kick-offs over the summer. Energy M&A activity is also way up this year.  

Have you noticed any interesting trends recently?   

Artificial intelligence (AI) has taken center stage this year and the technology is poised to change how M&A is managed. From streamlining business operations to scouting new M&A targets, AI is already impacting M&A by automating repetitive tasks, powering data analysis, and easing processes across all phases of a deal. In a recent Datasite survey, most dealmakers identified productivity as the biggest benefit of using AI, especially generative AI (GenAI), in their business, and that it has the potential to speed up M&A by up to 50%. Additionally, cognitive AI powered applications are helping dealmakers get better and faster deal pitch targets using anonymized private equity and other transaction activity.   

However, the incorporation of GenAI into M&A practices is not without risks, including concerns around privacy, intellectual property rights, security, and data quality. In fact, Datasite survey results show that most dealmakers favor government regulation of AI. Still, GenAI innovation is just getting started and, though it will take some time for companies to design clear use cases and hire the talent to manage and implement the technology, it’s clear that AI is set to be a significant disruptor in M&A.