If M&A is a key part of your business strategy, 2023 was likely a doozy. After the record highs of 2021 and a decent 2022, M&A volume plummeted to record lows in 2023 thanks to interest rate hikes, inflation, valuation gaps, and an overall uncertain economy. 

But the slight uptick in volume in Q3 and a promised paused on interest rate increases are giving M&A experts hope that activity is back on the rise. Your team is more than ready to dust off your old M&A playbook and hit the ground running in 2024.

This time, make technology part of your consideration, too. Deal teams can take advantage of M&A technology to automate your playbook, organize your workstreams, and enhance your due diligence process. Though things are looking up, the market is still on the mend, so it’s important to be strategic and precise in your M&A motion.

Here’s how technology can help make yours a winning M&A strategy.

M&A at a glance

Merger and acquisition (M&A) — the process of combining two separate business entities under a single identity — has been an effective business strategy for decades. When done right, M&A  transactions allow businesses to acquire more capital, talent, and IP than they could through organic growth.

The M&A process can be a painstaking one — by necessity. Whether a merger of equals or an acquisition of assets, the M&A transaction requires strong organization skills and sustained attention to detail during the entire transaction.

From start to finish, the M&A process can include:

• Collaborating with your team to determine your strategy and evaluate potential deals
• Preparing and signing a letter of interest (LOI) that outlines the basics of the transaction
• Preparing and signing a confidentiality agreement like an NDA
• Conducting legal, financial, operational, and other due diligence to uncover risk and validate the value of the business
• Negotiating deal value based on findings within due diligence
• Signing the M&A agreement and starting the post-closing integration process. 

An M&A process varies by transaction type, the size of the business, and the industries involved. An M&A deal can take as few as 70 days or as long as three years.

However, 2023 was a bear market with deal value and volume both decreasing significantly. The dollar value of deals in private equity M&A, for example, decreased 35% year over year. Similarly, deal value in North American M&A transactions declined by 37%, which is still lower than the global average of 45%. 

But 2024 shows promise. As M&A volume increases and debt financing becomes less expensive, 53% of corporate professionals expect the average value of a tech deal to rise in the coming year, while 38% anticipate deal volumes increasing over the same time period.

Now is the time for buyers and sellers to bring their A-game to the market, which means using the right tools to execute the right deals. Despite the dry market last year, dealmakers are finding a lot of potential for AI in M&A. Transaction teams can leverage predictive analytics, data extraction and analysis, and other neat AI features that can make the M&A process smoother.

Let’s look at why M&A deals often fail and how specific tools can help prevent these outcomes.

Why M&A deals fail (And how tech can help)

A decades-old but often-cited statistic from the Harvard Business Review says 70–90% of M&A transactions fail. That’s thousands of deals that never achieve success in the ways they anticipate. M&A deals can fail for any number of reasons, from not knowing your “why” behind the transaction to insufficient due diligence. 

One of the biggest reasons M&A deals sputter out is the lack of post-integration attention.

Poor post-acquisition integration

Even if a deal is the smoothest you’ve ever experienced, it’s what comes after you sign the M&A agreement that delivers the real value of the deal. This is when you try to literally make the two businesses into one and find a seamless cultural fit.

While some people underestimate the value of cultural fit, it can make or break the success of a deal. This is everything from compatible tech stacks and operations to company values and harmony between teams. 

A poor fit often leads to a failed deal, and failed deals can cost billions. For example, Time Warner and AOL thought their merger in 2000 would lead to the world’s largest media company. Unfortunately, they didn’t account for a misaligned culture, which cost them $99B in loss two years later.

While it can’t fix a bad cultural fit, tech can help you uncover incompatibilities during your due diligence process. M&As require searching for, reading, analyzing, reviewing, and drafting documents to ensure that the deal is truly valuable. As you can imagine, manual processes draw this out without providing the additional insight you need to truly evaluate the value of the deal. It can give you insight while you look at the bigger picture.

Here are three other reasons M&A deals fail, and how technology can help you overcome that obstacle for a successful deal.

Insufficient due diligence

Due diligence is one of, if not the most crucial aspects of M&A. Due diligence is when the buyer goes through the relevant and business-critical documents like financial statements, sales contracts, employee performance, outstanding debt, and so much more. This is to uncover the true value of the deal (whether or not the seller’s asking price is an accurate reflection of market value) and potential risks you might inherit if you buy.

Unfortunately, teams sometimes forego due diligence, whether to move faster or because they trust the info they already have. But this usually comes back to bite in the end. Research shows that 60% of failed M&A deals are due to poor due diligence. Whether the buyer didn’t take the time to review the documents or the seller is missing documents and not giving the buyer the full picture, insufficient due diligence introduces risk into the deal and can ultimately cost the surviving company millions.

How a CLM can enhance your due diligence process

Contract lifecycle management (CLM) can help your due diligence efforts in two ways: by making contract management a standard practice in your business before the sale, and by making all your agreements accessible to you in a centralized location. This means you never have to go digging for an old agreement — the ones you need will be right at your fingertips.

CLM comes equipped with a contract repository that centralizes contract storage. The contract repository increases the chances of you finding all your contracts instead of the easy to locate ones. Then, using AI contract analytics, you can extract key data points from contracts or find specific contracts that meet certain requirements. In no time, you can populate your data room and get the due diligence process started.

Lack of internal (and external) organization

In any given M&A deal, there’ll probably be several work streams to ensure a thorough and comprehensive due diligence. These can include legal, finance, compliance and operations, but will differ based on the business. These different work streams divide due diligence based on their areas of expertise — finance reviews finances, legal reviews contracts, and so on — then make their findings accessible to other members of the deal team.

Siloed work streams are inefficient and can cause M&A deals to fail. Poor communication, lack of visibility, and functional misalignment can lead the buyer to miss crucial data about the health of the seller. Poor organization often means poor due diligence.

How a legal project management tool can improve your deal team’s organization

A legal project management tool enables teams to organize, assign, and prioritize legal requests. Legal project management tools like LinkSquares Prioritize are built with compliance and collaboration in mind. It’s one of the more efficient tools for getting your different work streams on the same page, as it streamlines task execution, provides real-time updates, and gives other members of the deal team access to crucial information in a single location.

Legal project management allows your deal team to determine deal priorities and strategize more comprehensively. You can memorialize your workflows and assign tasks to different stakeholders in your tool. This way, everyone understands their marching orders. 

Misalignment on price

One of the most common reasons that deals were canceled in 2023 was a misalignment on price. Because of the increase in interest rate, it became even more costly to do debt financing, and investors were less willing to take on these risks in a time of economic uncertainty. 

Buyers are wary of overpaying, and sellers don’t want to risk taking less than they’re worth. As a result, the valuation gap between buyers and sellers widened further in 2023. Beyond a certain point, it’s near impossible for buyers and sellers to get on the same page, and the deal ultimately falls through. 

How predictive AI can help narrow valuation gaps

AI is powerful software that helps teams complete complex calculations — like valuations. The valuation process can be fraught and complex and use any number of variables to calculate the cost. But with AI, you standardize your valuation process, and do it more quickly. 

Predictive AI can take all your data, analyze it, and produce a more accurate valuation. This gives your team the opportunity to take a more data-driven approach and shorten negotiations. Plus, using AI for valuations can help you to make something that was often hit-or-miss and make it a consistent part of your M&A strategy.

Benefits of using tech during M&A

Technology empowers transaction teams to overcome common bottlenecks and problem areas in M&A deals. Technology helps tame the beast of this long and intricate process, and helps the deal team accomplish more with less effort.

In addition to moving faster, here are three benefits of harnessing legal tech.

Reduce costs

M&A transactions can end up being costly, especially if it falls through at the lost minute or fails to integrate post-transaction. For example, it can cost your business an additional six figures to have third–party reviewers comb through thousands of business documents. With the right M&A technology, deal teams can reduce that time and money investment significantly.

Improve collaboration

Between gathering internal documents, coordinating with your roster of experts, and giving regulatory bodies a heads up about the impending transaction, there are a lot of moving parts to keep track of in an M&A deal. With tools like legal project management, you can manage all your tasks (and stakeholders) in a single location without sacrificing time.

Access to data-driven insights

Good, clean data is the bedrock of a strong M&A motion. CLM and AI technology give transaction teams access to technology to help you understand the market and the value of the selling business. This insight helps you to reduce the risk of inheriting a problematic business while also tracking compliance within their contracts.

Conclusion

After a year down in the trenches, experts feel encouraged about M&A activity in 2024. The Federal Reserve has paused interest rate hikes, and seems to have a number of cuts planned for 2024. This means that now is a good time to get back in the game and compete in the market.

Because most M&A deals fail (whether canceled pre-acquisition or a post-acquisition flop), it’s absolutely crucial that your deal team conducts a thorough due diligence to discover potential opportunities or areas of concern with the company being acquired. These deals can fail because of poor organization, the inability to find your contracts, and a misalignment on price between buyer and seller. These problems have long been part of the M&A process, but with technology, they can be defanged.

Contract lifecycle management, legal project management, eSignature, and AI software can all be wielded to improve the efficiency of your merger or acquisition. These tools automate repetitive tasks, centralize business critical-documents, and help you to reduce the risks that come along with M&A. 

Your business can make this year its best for M&A by leveraging technology to your strategic advantage.