Lukasz Dziarnowski is a Managing Director and the Head of M&A Sellside Practice at BNP Paribas CIB. He oversees M&A transactions for a wide variety of corporate clients and financial sponsors throughout Europe. Lukasz has over 18 years of experience in the world of M&A financing and investment banking, including extensive work in leadership roles at J.P. Morgan.

We sat down with Lukasz to discuss how technology and data are impacting the due diligence process. Watch the full interview below or keep reading.

Q: How are data analytics used in business valuation?

A: I come across this question very often, sometimes from clients who question the benefits of data mining and in-depth data analysis. I truly believe that having tangible evidence to support the equity story behind a sale helps a lot with value maximization.

The way it works in practice is that the data gathered by the company’s internal processes or management systems is analyzed for micro-trends that could help explain how the business performs, driving valuation.

A good example could be a retail chain that monitors weather conditions around its stores and adjusts the pricing of different items depending on the weather forecast. The price of ice cream or soft drinks could be temporarily increased on very hot days. Once the data is collected, you can show how this proactive management of pricing helps increase profitability.

Another example could be a pharma company that sells different products across different geographies. By looking at the recent quarterly data — per type of customer, per geography, per product — you can find positive trends which support the equity story and thus, the business valuation.

Q: Does technology in M&A processes like due diligence ever cause deals to fail due to an overabundance of data?

A: This boils down to how human beings can deal with an oversupply of data. There is a stage beyond which more data actually makes the decision-making process more difficult. 

"Data analysis in due diligence should help that process, not overshadow it."

If people focus on minor items rather than the overall rationale for doing the deal, it can lead to analysis paralysis. In an M&A context, it’s critical not to lose the bigger picture and to focus on the key parameters that help assess the viability of an M&A transaction. Data analysis in due diligence should help that process, not overshadow it.

I’ve come across situations where overeager dealmakers spend too much time analyzing due diligence, forgetting that it’s a competitive process and some other potential buyers might move quicker.

Q: Are there any challenges presented by the abundance of data available?

A: The data that’s being included in the data room is very important, and I don’t think there’s any risk of showing too much.

From the seller’s point of view, the bigger the disclosure, the more protected they are from a post-closing risk perspective. And from the buyer’s perspective, it’s about prioritizing the elements they need for their bosses and the buy-side decision-makers, as well as satisfying the requirements of the financing banks and other sources of capital.

It’s about setting up a plan for where the focus should be and following that plan. An important role for the advisors is making sure that the scope of work to be performed in the M&A process is:

• Clearly defined
• Agreed on with the clients
• Sufficient to cover all the items that different decision-makers might need.

“The more communication between clients and advisors, the better the process is managed.”

And there should be regular catch-ups to discuss findings from the due diligence process, to make sure that the due diligence teams focus on the important items. The more communication between clients and advisors, the better the process is managed, and the lower the risk of analyzing data that’s not important.

Q: Are there any drawbacks of sharing synergies too early?

A: From a value maximization point of view, it’s very important to build a story around the strategic fit between the target and the buyers, including the value of potential synergies. It provides arguments for why the buyer should pay the price that the seller wants.

Is there an issue with highlighting this to the buyer too early? I don’t think so. The earlier you do it, the quicker you get the buy-in on the idea that this deal makes sense.

Thus, you help the deal team on the buy side to present it in the right way to their CEO, their CFO, and their board in order to get their approval. From the seller’s perspective, you hook them in, you create the strategic rationale around the deal. That makes the buyer more inclined to pay a higher price.

As we know, the decision-making process within a large organization usually takes time. Presenting the strategic rationale earlier helps the buyer get through their own internal processes more efficiently. I believe early communication on synergies is critically important and actually works to the benefit of both the seller and the buyer.

“The Role of Speed and Technology in the Evolution of M&A."

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Q: Do you think AI tools will replace human review in the diligence process?

A: Technology already has started to replace people, and it started with data rooms. You know, I remember physical data rooms 15 or 20 years ago, where all the documents were printed on folders and there were heaps of people coming in to review the documents. Now it’s all digitized and it’s much easier to access and search for information quickly. It really makes the life of the due diligence teams much easier and helps them work faster.

We’ve also started seeing the use of AI in data analysis, with large chains of data being analyzed for trends. I would say this doesn’t necessarily replace people, because people wouldn’t be able to do that within the timeframe of an M&A deal anyway. It just broadens the due diligence scope and helps people make more educated decisions.

When you look really long-term into the future, I think a lot of the more bread-and-butter review of legal documentation, financial statements, and so on will be done by AI. The role of consultants, accountants, investment bankers, and other advisors will be to draw the right conclusions from that analysis and present it to their clients. That’s the value-add.

Q: How is the role of advisors and corporate development changing?

A: First of all, advisors are used more these days and they cover more topics. Instead of having your three main teams — financial, legal, commercial — you also have things like:

• ESG
• Pensions
• Tax
• Operational efficiencies

Buyers are focusing on a lot of different areas now. Due diligence can also be done much more quickly thanks to technology, so the scope can be expanded.

What clients really want from advisors is the ability to draw relevant conclusions based on what’s in the data or what’s in the contract. They also value the ability to prioritize effectively and deliver their analysis quickly. Separating and highlighting the key points is something clients expect and are willing to pay for.

When it comes to corporate development in relation to M&A, I think that technology helps remove that time-consuming first layer of pre-screening. With so many databases collecting information about companies around the world, you can very quickly run a few queries and come up with 10, maybe 20 potential targets. That speed is important given the limited time people have, and the abundance of opportunities to invest.

Q: What are some benefits of deal teams using the same technology platform for the entire deal process?

A: I group the platforms used in an M&A context into two buckets.

One is what I’ll call data exchange and communication tools. By that I mean the virtual data rooms which can be used as a platform to exchange information and store documentation and data during the preparatory phase.

Then they have a second life once the deal goes live — they basically provide the platform where the buyers can find information and data about the company. These tools also help the seller manage access to this information and monitor the activity of buyers. You can see which documents they open most frequently, what questions they ask, and where is their real focus.

To do this, you should have one platform that stays constant throughout the deal. The best is a third-party provider with the right security setup and a brand name that’s credible for both buyers and sellers.

The other side of M&A tech is the actual analytical tools employed. Here it’s all about the USPs, the in-house algorithms that advisors use to draw conclusions for their clients. It’s up to the advisors to run their own tech tools in a consistent way. These are highly sensitive tools that are very rarely shared because they represent the intrinsic IP of each advisor. What the client sees is the outcome.

Q: How is the negotiation process different now compared to two years ago?

A: Two years ago, we were sort of in between pandemic lockdowns. I remember H2 2020 as the beginning of a very busy period that lasted for 18 months. I think it was the busiest period in global M&A ever.

It was pretty much a seller’s market — from the sell side, negotiating for the valuation you wanted was much easier. From the buy side, what mattered most was to be faster than others. It was a dream environment for sellers.

Since then, we’ve moved to much more of a buyer’s market. Buyers have become much more selective about things like:

• Sectors
• Types of companies
• Geographies
• Business models

And at least some of them have pushed the “Risk Off” button, meaning they’re not ready to part with money as quickly as they used to.

The financing markets are also not as liquid as they were. Both debt and equity markets are in some sort of dislocation that financing deals more difficult.

What you see now is sellers talking to a much smaller number of buyers. Often these are bilateral discussions, which means the negotiation phase tends to be longer. There’s more back-and-forth, and the sellers need to be more creative to come to a deal. They may need to concede on a number of topics, including valuation.

Deal volumes globally have also shown a certain slowdown. People who don’t have to sell are postponing their sell-side processes for later. They know that if they try to sell today, they won’t get to the valuation they want.

Lastly, I think there’s a great opportunity for buyers to make unsolicited offers. They can come in, place a competitive offer on the table, and potentially force the target to sell. That lets buyers preempt competition. If they have the financing and the ability to move quickly, their unsolicited offer might be quickly accepted by the seller and the deal can come to fruition.