Data analytical due diligence is driving M&A deals.

Author:Tiemann, Dan
Position:Strategy - Mergers and acquisitions

The underlying fundamentals of the mergers and acquisitions (M&A) market continue to improve in 2013, driven by the combination of a stabilizing the United States economy, favorable credit terms, open debt markets and elevated levels of cash on corporate balance sheets--all factors that can pave the way for a potential increase in domestic M&A volume this year. Acquisitive organizations planning to capitalize on this favorable and competitive environment will need to continue to adapt how they approach clue diligence, by fortifying traditional, defensive due diligence approaches with offensive value-creation strategies that leverage sophisticated methodologies driven by data analytics.

The organizations that can successfully adapt their due diligence approach, utilizing data analytics on both a defensive and offensive level, could potentially allow such investors to limit the potential down-side risks associated with a particular acquisition and, more importantly, increase the long-term value creation associated with their M&A strategy.

Before one can fully embrace the idea that 2013 will see relatively strong deal activity, it's necessary to examine the recent economic and political landscapes. Over the past few years, economic growth in the U.S. has been constrained by an anemic job market, a stressed housing market, conservative consumer spending, new regulations that have created uncertainty, disagreements among lawmakers around long-term tax and spending policies and foreign economic market pressure.

These general economic challenges intensified cost-cutting initiatives by many companies and significantly curbed M&A appetite among both strategic and financial players across the U.S. and abroad. At the end of 2012, it was evident that M&A activity had surely been depressed in terms of both deal volume and value, which would have been further depressed without fourth-quarter transactions that were pulled forward in light of potential tax rate changes.

Because of previous market volatility, one cannot fault those who remain pessimistic about deal activity this year, even in light of the few mega deals that occurred in the first quarter. However, though it is still difficult to determine exactly what the future holds for the M&A market, the necessary stars may be aligning in order for strategic and financial buyers to begin aggressively considering deals and, ultimately, pull the trigger.

Though the political climate remains complex, the avoidance of the fiscal cliff is a sign of near-term stability. Consumer confidence is returning in the U.S.--with a new high of 76.4 percent as of February 2013, according to Thomson Reuters/University of Michigan's preliminary index of consumer sentiment. Additionally, U.S. companies continue to report solid financial and operating results, with many S&P 500 companies showing...

To continue reading