January 19, 2018

Global M&A due diligence times drop, but why?

Abby Roberts, Merrill Corporation | January 19, 2018

As many of you know, Merrill regularly provides a unique set of insights into future M&A based on its majority share of financial due diligence projects.

In response to reader interest, we are expanding the scope of our inquiry into select new and interesting transaction trends past, present and future. We hope you will help us play detective, as we share proprietary insights with you and try to understand not just what is happening, but why.  

Mystery #1 – why have global M&A due diligence times dropped?

Deal duration times, as measured from DataSite project launch to close, fell by an astonishing17.6% to a 6.1 month average in 2017 from 7.4 months in 2014.*  

M&A experts informally polled by Merrill attributed the decrease to more competitive auction processes, the rise of M&A insurance and increases in pre-due diligence analysis.

More competitive auction processes. Add agile, deal-hungry private equity players together with cash-heavy corporates then mix with prime acquisition targets and what do you get? Faster, more competitive auction processes, experts say. Due diligence speed and placing bids quickly are now major factors behind deal success. 

Rise of M&A insurance. The recent ramp up in rep and warranty M&A insurance may also be in play, several sources speculated. M&A insurance has become standard in many industries to help mitigate exposure to unknown risks and liabilities. An unintended consequence could be more laxity on lower-level due diligence items, speeding up sale processes.

Increase in Pre-Due Diligence. The world has gotten smaller, at least from a business intelligence standpoint. A robust public and private financial information market makes it easier for buyside professionals to identify and vet potential acquisitions before teasers hit the inbox. Third party expert networks also have become endemic, letting deal-makers quickly fill in market knowledge gaps.

*Based on a three-year moving average; 2017 calculated mainly on H1 closes.

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