The M&A marketplace — like the rest of the economy — has been through some dramatic shifts in recent years, forcing dealmakers to adapt on the fly. Datasite brought together a panel of experts from across the M&A landscape to discuss the strategies and tools they’re using to navigate these turbulent waters.

What can we expect in the months ahead?   

Elle Cathey, Datasite’s Senior Director of Product Marketing, kicked things off by asking participants about their forecasts for M&A deal activity in Q2.

The audience poll respondents were optimistic, with 42% predicting an increase in activity and only 20% expecting a slowdown. That’s consistent with Datasite’s January Forecaster report, which showed signs that many long-delayed deals are finally moving toward closing.

Monty Yort, Director of Corporate Development at KnowFully Learning Group, agreed that we’re likely to see more deals closing.

“Buyers are tired of waiting on the sidelines with dry powder,” he said.

Jennifer Fondrevay, founder of the M&A consultancy firm Day1 Ready and human capital advisor for Virtas Partners, said that on the integration side, things are picking up considerably. Many buyers are focusing on how to get the most value from the acquisitions they made during the frenzy of 2021.

How are deals getting done in 2023?

Cathey pointed out that the disruptions of the past few years have pushed many dealmakers toward creative strategies like PIPEs, SPACs, and equity financing. She asked the group what types of transactions they expect to see more of moving forward.

Yort noted that on the corporate side, earnout structures have become a common way to bridge the buyer-seller valuation gap. He also mentioned that strategic partnerships are gaining popularity as a way to scope out possible opportunities or red flags prior to an acquisition.

Fondrevay seconded this, saying that partnerships and acqui-hires can be a great way to “beta test” possible deals. She also noted that she’s seeing multiple divestitures, carve-outs, and exits, as companies are still figuring out what works for them after the flurry of deals in 2021.

Pipeline challenges and how to tackle them 

Pivoting the discussion to M&A best practices, Cathey asked what the biggest obstacles are to effective pipeline management. The panelists cited difficulties like limited information on targets, irrelevant leads, and the fact that so many of the tools available are outdated or split between several different platforms.

How are the experts overcoming these difficulties? 

Yort noted that sourcing involves a fair amount of networking through industry conferences, as well as finding savvy buy-side advisors to help with target selection. He also emphasized the usefulness of the Datasite Pipeline tool, which provides an integrated workspace to handle key tasks such as tracking diligence files and managing communications.

Nicholas Renter, Datasite’s Vice President of Product Marketing, noted that deal readiness can mean different things at different stages of a firm’s life cycle. That may be part of why 81% of respondents to our dealmaker survey said they need a platform offering a complete suite of M&A tools. That’s exactly what Datasite Cloud provides, helping clients effectively prepare for and manage every phase of the M&A process.

The high cost of wasted time

Datasite’s recent survey of over 600 dealmakers suggests that delays and inefficiencies in due diligence are major headaches across the industry. Each week of due diligence costs an average of $100,000 USD. Cathey asked what’s the main driver of that cost.

The poll responses were split relatively evenly between internal operations, banking fees, and third-party diligence fees. A significant number also mentioned legal fees were the biggest driver.

“Our customers also talk to us about the opportunity costs associated with diligence,” added Renter. “What opportunities aren’t we able to consider because we’re so tied up on a transaction?”

Fondrevay mentioned that you can’t ignore the costs associated with rushing through the process and making mistakes while Renter seconded this. She continued adding that the high weekly costs of diligence can obscure the cost of doing it quickly. She suggested that firms can save money in the long run by employing tools like culture assessments to reduce the odds of problems on the back end.

Lessons for dealmakers in turbulent times

What should M&A professionals do to manage acquisitions effectively amid market turmoil? The panelists offered a few best practices. 

Fondrevay mentioned a favorite scenario-planning exercise she calls a “premortem.” The idea is to identify all the ways that a deal could go wrong, from top talent leaving to geopolitical disruptions, and come up with strategies for how to handle them. 

Yort advised dealmakers not to get too caught up in looking at the short-term headwinds. Instead, he said, the key is to look at the fundamentals:

“Items like industry growth rates, competitive differentiation, strength of customer relationships — the kind of items that will enable a company to stand above the rest in any economic environment. That’s where we focus our attention.”

Summing up and looking ahead

Cathey asked the experts to close with a single word that captures their feelings about the current state of M&A. Renter said the word that came to mind was “stressful”, but that when he asked ChatGPT the same question, it said “opportunity.” Yort said that was very appropriate because his word was “opportunistic” — he views this as a great environment for smart buyers. 

Fondrevay said her word would be “humanity,” emphasizing the need not to lose sight of the personal and relational side of the industry.

All in all, the discussion painted a picture of an M&A market showing signs of renewed vigor after the past year’s slowdown. Though both buyers and sellers may need to get creative to seize the opportunities ahead, there are good reasons to remain optimistic as we move deeper into 2023.