Enhancing Transaction Probability through a Data-Driven M&A Platform

I. Introduction

Based on aggregated studies and a recent analysis by Harvard Business Review, the percentage of unsuccessful mergers and acquisitions (M&A) ranges from 70 to 90 percent, making an M&A success look very bleak. When it comes to executing an M&A, numerous factors come into play, both internal and external, that can significantly impact the probability of a successful transaction. In this blog, we will explore how leveraging a data-driven M&A platform can enhance transaction probability by addressing deal sourcing factors.

II. Internal and External Factors in Transaction Probability

The success of a merger or acquisition (M&A) transaction depends on a number of factors, including the target company's financial health, management team, and strategic fit with the acquirer. However, there are also a number of internal and external factors that can influence the probability of a transaction closing.

1. A Successful Transaction Equation

The probability of a successful M&A transaction can be modelled as a function of the following factors:

Successful transaction = f(deal origination, founder intent, valuations, deal structures, due diligence, integration)

These factors can be elaborated on as:

• Deal origination: Availability of target pool for sourcing, screening and shortlisting.
• Founder intent: The founder's willingness to sell.
• Valuations: Revenue or EBIT multiples between acquirer & acquiree.
• Deal structures: How the deal is structured, payout options, stock vs cash options, etc..
• Due diligence: Process involving thorough audit of the assets & financial data..
• Integration: The smoothness of the integration process post merger or acquisition.

The equation above shows that the probability of a successful M&A transaction is a function of a number of factors. The more factors that are optimized, the higher the probability of a successful transaction. Moreover, the factors that affect a transaction can be divided into internal and external.

2. Internal Factors

Internal factors that can affect the probability of an M&A transaction closing include:

• Coverage of all potential targets outside of the network
• The acquiree's financial health
• The acquiree's strategic goals
• The target company's willingness to sell
• The target company's valuation expectation
• Synergies between acquirer and acquiree
• Due diligence and integration

3. External Factors

External factors that can affect the probability of an M&A transaction closing include:

• The state of the economy
• The regulatory environment
• The competitive landscape
• Global factors like recessions, pandemics, etc.

4. Enhancing Internal Factors through Deal Sourcing

While external factors are beyond our control, internal factors can be managed and optimized to increase transaction probability. One way to enhance the internal factors that affect the probability of an M&A transaction closing is to tighten the noose during the deal sourcing process so that only relevant potential targets pass through the next phases. Companies can use a data-driven M&A platform to identify and assess relevant potential targets. This can help acquirers to identify targets that are a good strategic fit, that are financially healthy, and that are willing to sell. This can help to reduce the risk of the transaction falling through and to increase the likelihood of a successful outcome.

IV. The Process of Enhancing Transaction Probability with GrowthPal

A deal sourcing platform like GrowthPal can enhance internal factors by providing acquirers with access to a wealth of rich and accurate data on potential targets, including financial information, management team profiles, and strategic insights. Such a platform provides you access to targets outside of your network so that you can rest assured that you are not missing out on a better suitor.

Here are some specific ways that a deal sourcing platform like GrowthPal can enhance internal factors:

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1. Identifying potential targets: GrowthPal's database includes over 2 million companies with rich intelligence, and it is constantly being updated with new data. This means that acquirers can be confident that they are considering all of the potential targets that are a good fit for their strategic goals across the universe and not missing out on any potential target.

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2. GrowthPal’sAI/ML technology helps you shortlist 5x more targets for your acquisition mandate with higher accuracy. The first step is to identify potential targets from a rich database of 2 million+ companies across tech-enabled sectors and geographies. This database is curated from over 60 data sources and provides intelligence on these companies, including their financials, growth metrics, and competitive landscape. The second step is to use advanced AI/ML algorithms to scan the entire universe of startups and new-age businesses to find matching targets that meet your inorganic requirements.

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3. Deliver ‘Ready to Transact’ Targets: GrowthPal's team of analysts conducts personal dialogs with matching targets to validate and gather recent data, as well as gauge the founder's intent for acquisition or strategic investment. Only targets that meet your criteria and have the right intent are shown to you for further discussion. This saves buy-side customers a significant amount of time and effort in manually shortlisting, screening, and qualifying targets.

By providing access to a wealth of data and tools, deal sourcing platforms like GrowthPal can help acquirers to enhance their internal factors and increase the likelihood of a successful M&A transaction.

V. Real Life Examples and Success Stories 

1. 58 Ready to Transact leads for a Series B funded company

Numerous success stories exist where organizations have leveraged data-driven platforms like GrowthPal to enhance transaction probability. For example, the successful acquisition by a Series B-funded company. GrowthPal helped a Series B-funded EdTech company acquire another company within just 6 months of receiving their mandate. The company did not have an in-house Corp Dev team or any prior experience with acquisitions, so they partnered with GrowthPal to identify and qualify potential targets. GrowthPal's platform identified 500+ potential targets with its advanced recommendation engine and their analyst team screened this to gauge founder’s intent and shortlisted 58 Ready to Transact leads. This saved the company a lot of time and resources, as they would have had to go through all 500+ targets on their own otherwise. In all likelihood, the company would not have been able to find these many target options on other research platforms, leading to them missing out on a few serious contenders.

Here are some of the key benefits of using GrowthPal's programmatic M&A platform:

• Increased efficiency: GrowthPal can help you identify and qualify potential targets much faster than you could on your own with our data driven recommendation engine.
• Improved targeting: GrowthPal's platform uses advanced AI/ML algorithms to help you identify the right-fit companies for your acquisition.
• Reduced costs: GrowthPal can help you save time and money on your M&A deal sourcing, screening and shortlisting process by delivering ‘Ready to Transact’ leads directly for review and approval. 

The case study demonstrates the effectiveness of GrowthPal in facilitating successful M&A transactions and showcases the platform's value in driving strategic business development.

2.  300% increase in deal productivity for a leading neo-banking company

Users of GrowthPal have experienced remarkable success in their M&A deal sourcing endeavors. The case study from GrowthPal showcases how a Neo-Banking platform in India partnered with GrowthPal to improve its deal sourcing productivity. GrowthPal helped a Neo-Banking platform in India increase its deal sourcing productivity by 300%. The company was able to achieve this by leveraging GrowthPal's data-driven M&A platform, which provided them with access to a curated pool of high-quality deals, as well as advanced analytics for informed decision-making.

Specifically, the company saw the following improvements in its deal sourcing funnel:

• The number of approved deals per week increased from 1 to 3.
• Proprietary deal flow increased from 50% to 90%.
• The client approval rate for "fit to mandate" deals increased from 40% to 70% in just a matter of weeks.

These improvements were achieved by streamlining the deal sourcing process and utilizing GrowthPal's high-quality data and advanced analytics. The company could identify and pursue more opportunities that aligned with their internal factors, ultimately resulting in increased deal success.

The customer also closed three transactions from the recommendations provided by the platform.

3. 7 acquisitions with GrowthPal’s programmatic M&A platform

An In-depth case study of a leading D2C giant in India that partnered with GrowthPal to increase their top of the funnel and make 7 successful acquisitions in just 18 months. The company was able to achieve this by leveraging GrowthPal's Programmatic M&A based recommendation engine, which involved building a continuous pipeline of ‘Ready to Transact’ leads for their multiple mandates, while maintaining quality in profiles and consistency in delivery over time.

GrowthPal helped the company to source 190+ "Ready to Transact" deals, which led to 30+ Letters of Intent (LoI) and 7 successful acquisitions. This was a significant improvement from the company's previous deal sourcing process.

The key to the company's success was using GrowthPal's data-driven M&A platform, which provided them with access to a curated pool of high-quality deals, as well as advanced analytics for informed decision-making. This allowed the company to identify and pursue more opportunities that aligned with their internal factors, ultimately resulting in multiple acquisitions.

VI. Conclusion

In conclusion, the success of an M&A transaction is dependent on a number of factors, both internal and external. However, by leveraging a data-driven M&A platform like GrowthPal, acquirers can enhance their internal factors to increase the likelihood of a successful transaction.

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