Cloud benefits: unlocking M&A

April 2023  |  FEATURE | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

April 2023 Issue

Cloud technology has come a long way from the days when data was stored on floppy disks to become a critical component of today’s IT architecture. Now, it is a technological fixture increasingly being utilised by M&A practitioners as a deal accelerant.

Without doubt, time is of the essence in an M&A transaction. The earlier a deal can be executed, the sooner value can be realised. And with deals having the capacity to be complicated and fraught with peril, especially with respect to information technology, cloud services offer an expedient answer.

Testifying to this is the Deloitte report ‘Cloud-powered private equity’, which states that cloud technologies present considerable opportunities in the face of an expanding, competitive market. The report goes on to say that while there is a learning curve for cloud implementation, with the right strategy and support, dealmakers may gain higher, more predictable margins on future acquisitions and divestitures.

“Since a major component of the M&A process is the accumulation of vast amounts of data, usually from multiple sources and regions, the technological solutions offered by the cloud sector are extremely attractive,” says Christopher Kummer, president of the Institute for Mergers, Acquisitions and Alliances (IMAA). “This, combined with the computational power built on top of the cloud technology, reduces the errors, risks, costs and time constraints of the M&A process.

“It is important to note that this is already operational, meaning that the technology exists and is being implemented by a select number of enthusiasts and optimists,” he continues. “In order to fully benefit from the known advantages and ones to be discovered – which are equally as attractive if not more – the adoption process requires to be expedited by all sectors, M&A being one of the pioneers.”

Cloud benefits

There are various benefits – both direct and indirect – of using cloud technology throughout the M&A process. This technology can act as a cornerstone for any deal and allow dealmakers to both smooth out and speed up the transaction and its integration.

According to the KPMG report ‘How data cloud can disrupt M&A’, there are six key benefits of using data cloud technology for M&A, as outlined below.

First, better diligence at lower cost in less time. This means greater volume and quality of analyses, with less time and effort required, as well as a lesser need for dedicated IT infrastructure for each bidder.

Second, greater synergy sizing and planning. The result here is better cost benchmarks, more reliable revenue synergies, and more predictive pipeline and churn analyses.

Third, less value leakage during integration. There are less handover issues from diligence and greater speed and quality of synergy capture, while additional upside potential is also easier to find.

Fourth, accelerated performance improvement. Acquirers should find it faster to expand prior data sets from integration and easier to access external data. There is also a new ability to monetise proprietary data.

Fifth, faster portfolio enhancement. Here, it is easier to share data among private equity (PE)-portfolio companies, or corporate business units, and with trusted channel partners.

Lastly, easier to divest and separate. This involves deeper, more credible value propositions that are faster for buyers to evaluate. There is also less IT entanglement during separation.

In the view of Mr Kummer, as a business expansion strategy, M&A is a great way for the markets to both compete and grow, while correcting existing mistakes and deficiencies. “The problem is not the strategy driving an M&A approach, as much as it is the implementation and excellent execution of it,” he suggests. “Among the key issues are the costs associated with the M&A process and the amount of time it takes to conduct due diligence.”

“So much time and money go into this, that inadequate resources – time, money, manpower and know-how – are allocated to the aftermath process, the post-merger integration,” he continues. “Present cloud technologies offer primary benefits in the areas of accessibility of data, time savings and management, cost reductions, higher accuracy of mass computed data and ease of computational processing.”

Ongoing shift

While cloud technologies are indeed redefining how M&A practitioners approach the technology separations and integrations that result from transactions, it should be noted that many potential adopters remain tentative.

“Success stories from enthusiasts and optimists of the cloud will help to persuade others in the M&A sector to also consider shifting to this technology,” believes Mr Kummer. “Once current concerns and bugs that exist are resolved, there will be less resistance around its implementation.

“Just like any other technology, its future is always far more interesting than its early stages,” he concludes. “However, given the known benefits of the cloud, such as cost reductions and time savings, this alone should be enough for the M&A sector to seriously consider leveraging cloud services.”

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Fraser Tennant