May 19, 2022 | Case Study
KPMG is a global network of professional services firms providing audit, tax and advisory services. The firm operates in 147 countries and territories around the world.
While North American and European markets have led the way in using advanced data analytics in M&A, the trend is gaining traction in APAC and most recently in China.
Indeed, M&A practitioners in the country, as part of a broader regional trend, are now more actively embracing the use of big data to help analyse and execute cross-border and domestic deals, supported by rising demand among sellers and buyers for it together with greater availability of more granular deal data.
Advanced data analytics can be used in various stages of M&A, including deal identification and screening, execution and post-deal value realization. For instance, the screening process can be automated through the capture, triangulation and analysis of financial and non-financial data, according to KPMG research. This might include social media sentiment or a slight intimation of ‘something new’ hidden within news articles.
What’s more, some analytical tools and platforms can now transform massive volumes of raw transactional data into meaningful financial and operational insights in record time, enriching and speeding up analysis.
Quality in, quality out
For sellers, improving the quality of information and analysis around a deal in the M&A process is important, often increasing the probability, for instance, of pulling in attractive bids from high-quality buyers, particularly private equity firms.
“In a classic offering memorandum on a sell-side pitch it contains scenarios and different outcomes in terms of revenues and profitability to illustrate where value can be realized,” says Ryan Reynoldson, partner, head of transaction services at KPMG in China. “By using data analytics, it’s easier to demonstrate concrete outcomes.”
Reynoldson adds that due to some private equity deals being very competitive in China, this requires a wider acceptance o frisk on transactions, “so any degree of innovation that can help manage that risk is welcome.” The same is true for corporates given the level of competition around certain assets.
Big data improves business decisions
On the other side, buyers are also starting to see the value that can be added from data analytics. “We worked for a client where competition for an asset was very fierce. The asset was highly priced and this assumed a certain level of upside. We were able to use analytics to look at costs and revenues on a much more granular level,” says Reynoldson. Janet Cheung, partner, head of valuation services, at KPMG in China, adds that the application of big data analytics in the country is, at this stage, more prominent in some industries than others. “The retail sector is a very specific example of this,” she says, “because its level of data is just much more granular.”
Looking out over the next five years and beyond, Reynoldson and Cheung say together with data analytics, future innovation in the M&A process will also involve technology enabling companies to be benchmarked against one another based on their environmental, social and governance (ESG) credentials. This type of analysis, they say, will feed into valuations.
In China, as elsewhere, ESG has rapidly become a critical area of focus. If there was any doubt, the results of Datasite’s recent survey show this; 98% of practitioners in China said ESG is an important or very important consideration in M&A. More strikingly, 70% said they have worked on M&A transactions that have not progressed due to concerns about a target company’s ESG credentials.
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