Investment Operations

AI to Speed Up M&A Due Diligence, But Data and ESG Issues Remain

ChatGPT Artificial Intelligence for Corporate Actions

In the next five years, new technologies like artificial intelligence will transform the mergers and acquisitions (M&A) process by decreasing the time it takes to perform due diligence to less than a month from three to six months today, according to The New State of M&A, a new report from Datasite.

78% of dealmakers say ESG credentials are top concern to preventing a deal from progressing.

The report, which is based on a survey of over 2,200 M&A practitioners from corporations, private equity firms, investments banks, law and professional services firms across the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (APAC) on both the current state, and the future outlook for M&A, shows due diligence is a prime area for digital transformation and is expected to benefit most from technology advancements, according to 48% of respondents. More than half of respondents (56%) also predict that by 2025, due diligence will take, on average, less than one month to complete. This compares to today, where dealmakers in the Americas and EMEA (63%) report it can take one to three months to complete a deal, and between three to six months in APAC (66%).

Additionally, 67% of respondents predict the M&A process will experience a high level of digital maturity and technological sophistication in five years, compared with 82% of dealmakers who believe the digital maturity and technological sophistication of the M&A process today is at a medium level. Regionally, deal makers said EMEA would be the slowest region in adopting M&A processes that are digitally mature and technologically sophisticated.

“New technologies, such as AI and machine learning, are making the entire M&A process, not just due diligence, faster and less labor-intensive,” said Rusty Wiley, Chief Executive Officer of Datasite. “These new capabilities are valuable in managing all corporate actions, including restructurings, which are increasingly taking place due to the market downturn brought on by COVID-19.”

Changing due diligence demands

Still, there is some way to go before the M&A industry can be considered digitally transformed, as investment constraints and issues surrounding data security and privacy are still seen as large barriers to getting deals done. For example, dealmakers noted that technology could accelerate the due diligence process and 35% said accessible virtual data rooms with AI and machine learning technologies would help accelerate due diligence the most. However, a target company’s ability to provide ESG credentials or comply with data privacy regulations will increasingly affect whether a deal succeeds. A meaningful 78% of dealmakers said they had worked on deals where concerns about a target company’s ESG credentials prevented a deal from progressing, while 40% cited concerns about data privacy as having a similar effect on a deal.

Thirty-six percent of practitioners said data or cyber security concerns represent the most common issue uncovered in due diligence that leads to withdrawal from a deal. Additionally, more than two-thirds of dealmakers (69%) said ESG factors and data privacy regulations will be very important considerations in M&A due diligence by 2025, both up from the mid-teens today.

“The economic downturn has upended many organizations’ standard operating procedures, but the impact ESG concerns are having on M&A can’t be understated,” said Wiley. “The COVID-19 pandemic has called attention to how companies treat their employees, customers and suppliers, and ESG factors will likely continue to influence how companies select potential targets and business partners.”

Technology isn’t expected to solve all M&A process challenges. Most dealmakers say there are areas that simply can’t be automated through technology, especially when it comes to strategy (89%); negotiation (80%); and deal preparation (65%).

Other key findings from the report include:

  • 31% of practitioners say incomplete or inaccurate deal documents and information is the most significant factor to slow due diligence.
  • 65% of practitioners believe new technologies should enable greater analytical capability in the due diligence process in five years’ time.
  • 30% of practitioners believe technology will help improve secure end-to-end process, data management and communications the most.
  • 50% of practitioners say a lack of insights on buyer behavior across mandates is the most challenging aspect of marketing an asset for sale.

The survey was conducted by Thought Leadership Consulting, a Euromoney Institutional Investor PLC company, for Datasite between February and April 2020. To learn more about the new findings, please visit: