Two letters can make all the difference. It’s not a matter of wordplay. It’s a matter of ability to deal with data. It’s a matter of adding value to your businesses. 

Don’t fall into the trap of mixing up digitalization with digitization. There is a vast number of businesses that claim to have digitalized M&A processes. But it turns out, that the most digital thing that many have, is an Excel spreadsheet in pdf-format that is sitting in a data room. Sorry to say, that’s not digitalization. Let’s look at a definition of both terms as well as some examples to provide a straightforward explanation. Understanding the distinctions is important. Why? Well, digitalizing M&A processes, can deliver an efficiency increase and cost reduction of up to forty percent. 

Digitization: Working with unstructured data

A common definition of digitization goes like this: Digitization describes the analog-to-digital conversion of existing data and documents. In M&A though, it is common to conduct digital-to-analog conversions as well. Let’s pause for a second and think about how crazy this sounds. Why on earth would you transform something from digital to analog in 2022? Because of data security concerns? And confidentiality? Let look at the following example to elaborate further.

Franz Fadenhauer is a Senior Manager at a renowned M&A and strategy consulting firm. His client is planning to carve out and sell one of its business units. Franz is asked to support his client during the due diligence process. During the due diligence process, the seller shares all relevant data and information with the client to inform the assessment and decision-making process. The following is important: Up to this point in time, all files are available in structured data, e.g., spreadsheets with employee salaries. Before sharing the required information with the seller, let’s continue with the exemplary spreadsheet with employee salary data. Now, Franz takes the spreadsheets and saves all documents in pdf format. Reason: Data security and confidentiality. The seller shall not be able to manipulate the data, which could result in a change of the valuation. Consequence: The information about the employee salaries cannot be processed by the buyer without manual work. It is not possible to analyze and process numbers (on a large scale) in a pdf document. The buyer side needs to go to the pdf document (unstructured data) and manually process (typing) all information from pdf to spreadsheet.  Isn’t it crazy that most M&A teams still rely on such processes in 2022, although smart technology is at their fingertip? 

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Digitalization: Working with structured data

With smart technology at your fingertip, you can make a big difference in any M&A process. Best practice teams achieve forty percent efficiency gains when digitalizing their processes. But let’s first look at the terminology to ensure that we can differentiate digitalization vs. digitization. While digitization is rather a conversion of data and processes, digitalization is a transformation. Digitalizing a M&A function means that you are doing everything digital first and fully digital. Digitalizing a M&A function also means that you are embracing technology to work with structured data strictly. 

Let’s look at the exemplary use case of Franz Fadenhauer again to elaborate this perspective. If Franz is working in a digitalized M&A function, then the process would look like this. Franz collects all information and data in a system (e.g., smartmerger platform). Franz does not need to send out and consolidate any spreadsheets to share information about employee salaries with the buyer. To share the employee salary data with the buyer, Franz assigns reading permissions to the respective responsible on the buyer side. All information is treated and processes securely and confidential. The best thing: The buyer receives structured data and does not need to manually create spreadsheets from pdf documents. 

Why structured data matters, a lot

In M&A structured data matter a lot, because there is simply so much information that needs to be shared to understand and assess another organization well and confirm its potential value during a sale. If the sell side shares structured data in a data room or system, the buy side can access all required and permitted data directly. This results in enormous amounts of time saved on the buyer side but also on the seller side. Collecting data with digitalized processes, eliminates all manual efforts with regards to versioning control, manual sending of files per email, manual follow-ups, manual consolidation, number crunching and saves you a lot of time. Working with structured data, allows you do real-time analysis directly on data collected and shared. You can use all types of analytic tools to assess, evaluate and interpret data during the due diligence process. 

How to digitalize M&A processes

We have said that digitization refers to information, that gets digitized: Seller creates spreadsheet --> seller creates pdf document --> seller puts pdf document in a data room --> buyer downloads pdf document --> buyer creates spreadsheet from pdf document --> buyer conducts analysis on seller data. Digitalization however refers to the fact that organizations and processes are digitalized. Digitalization means to create digital equivalents of manual/offline processes. By working with a digital systems that allows to collect, process and share data with tons of customizing opportunities, you never have to use pdf documents again during a deal process.  

At smartmerger we are helping our clients to work digital first with standard applications that are built for M&A. Remember: Spreadsheets and PowerPoint presentations are not built for M&A.

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Michael Klawon

Michael Klawon

Scientific Practitioner and LMU x Breitenstein Consulting Project Participant

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Article Topics

M&A Platform
Post-Merger Integration
Due Diligence