According to new research from Bayes Business School conducted for SS&C Intralinks, investors are taking a significant amount more time to complete due diligence ahead of potential M&A deals than they were a decade ago.
The M&A Research Centre at Bayes Business School (formerly Cass) analysed over 900 global M&A transactions announced between 2013 and 2023, consulting data from SS&C Intralinks’ proprietary database. The study defined due diligence as spanning the time between the opening of a virtual data room (VDR) and the deal being publicly announced.
They found that the due diligence process took on average 64 per cent longer over the last decade compared to deals analysed in a similar study from 2013. According to the report, average due diligence times have risen from 124 days in 2013 to 203 days.
M&A professionals interviewed for the study by Mergermarket stated that due diligence was now a more complex process, citing factors such as more stringent regulation (e.g. GDPR), the growing importance of ESG considerations, geopolitical uncertainty (such as Brexit and Russia’s invasion of Ukraine) and increasing digitisation.
According to the report, the trend for longer due diligence processes seems to be accelerating. However, it also noted that COVID-19 was likely to have had an impact, with due diligence typically taking 189 days between 2013 and 2020, a figure that increased to 247 days over the following two years.
The report stated: "That effect may partly reflect the impact of the pandemic, which forced dealmakers to adapt to different ways of working. However, it is undoubtedly a significant shift – not least because it started before the pandemic."
Mergermarket interviewed 30 M&A professionals for the study, asking for commentary on the results, how due diligence impacts the dealmaking process and what is behind the trend towards longer due diligence timelines.
Dr Valeriya Vitkova, a lecturer in corporate finance at Bayes and the study’s principal author, said: "It is striking that the professionals contacted for the study highlighted new regulatory requirements and the rise of ESG. That wider scope means bringing in professionals with additional skills and expertise and providing additional management oversight of those functions."
According to some participants, technology has increased the complexity of due diligence. However, they also noted that VDRs were beginning to speed up the process, with one respondent saying that technology “has been very effective in helping us manage our due diligence processes more efficiently."
SS&C Intralinks' Co-Head Ken Bisconti commented: "Many dealmakers are now devoting significant additional resources to this work — both to cope with the increasing volume of data and information, and to test the deal's merits. The ubiquity of VDRs and the evolution of other technologies give dealmakers new tools for conducting more robust due diligence exercises without creating unnecessary delays – particularly if both buyer and seller are prepared to be open and collaborative."
The 2013 analysis was the first study to explore the time taken for due diligence and how this affected the outcome of the deal, also looking at how due diligence was affected by a deal’s size, type and geography and the extent to which technology was used. The new study used a similar process to generate a comparison.
Professor Scott Moeller, Director of the Bayes Mergers & Acquisitions Research Centre, said: "In the intervening decade, no one else has studied the subject, so we repeated the exercise. The results suggest the M&A world has changed significantly in that time."
Find out more about the role of virtual data rooms in M&A
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