Increase Confidence In Deal Due-Diligence With Third-Party Data

While deal volumes are trending down this year, the value of transactions is growing, as larger companies join forces to capture more market share, or diversify their businesses. And, while there has always been a need for granular valuation data to support decision making, larger deals could potentially bump-up against antitrust regulations and recently enacted protectionist laws. As such, comprehensive and granular ownership and intellectual property data is required to understand the implications of initiating a deal.

Protectionist Acts Require Deeper Deal Due-Diligence To Adhere To Regulations

Government agencies that monitor deals for the transfer of critical technologies to foreign countries need ownership and intellectual property data, too. Regulations like those enacted by The Committee on Foreign Investment in the United States (CFIUS) and the National Security and Investment (NSI) Act in the United Kingdom are driving the need for closer review of deals. This type of data is critical in facilitating those reviews to potentially intervene in transactions that include strategic national assets. Governments also need deal data to bring a level of detail into their reporting around Foreign Direct Investment, to ensure they can paint a complete picture on the business environment locally, regionally, or nationally.

While larger deals get the most attention, not everyone can afford to invest hundreds of millions, or billions, of dollars into business growth. Increasing deal valuations are driving interest in private companies that haven’t reached maturity, and where the cost of investment is much lower. As such, there’s a growing need for private company data, financials, and niche comparables. And, whether the deal involves a large multinational, or a small local, private business, there is rising demand for ESG information, as more climate regulation takes hold and shareholders and investors increasingly desire greener operating models.

Third-Party Data Can Enhance Your Deal Due-Diligence Process

One thing is for certain, in today’s volatile environment entities are finding it necessary to establish a robust due-diligence process to ensure deal risk is minimized. Deep, varied data is needed to minimize risk and many entities turn to trusted third-party data providers to deliver comprehensive deal data, including information on rumors and deals, identification of target markets and companies, ownership structures, research on comparable companies, company financials, valuations, and historical data.

Third-party data providers have access to many sources of information from which they acquire data, and then package and deliver directly, or through other data partners, to private and public entities. From timely news and alerts, to granular data on ownership links, company financials and deal histories, a third-party data provider can play a critical role in supplying the detailed information you need to stay on top of transactions and instill confidence in your deal due-diligence process. To start, having access to near-zero latency news and alerts, delivered directly to your inbox helps you monitor markets, companies and deals efficiently. Working with a vendor who can customize news and alerts will help you receive exactly the information you need, almost as quickly as it occurs.

Access To Timely Company Transaction, Ownership And Historical Data Can Help Select Targets

As you’re working through your due-diligence process to build a pool of acquisition targets, it’s important to have access to transaction details in order to identify the most relevant companies. For example, if you’re looking to acquire a pharmaceutical company researching immunotherapy treatments for leukemia and you begin with a search of companies focusing on leukemia drugs, that can be a fairly wide slice of that sector to parse through. To refine your potential target pool further, you’ll need access to transaction and other corporate data to narrow down your search. Proxy information that provides details on a company’s business, such as trade transactions, services offered in market, brand value, patent data, legal filings, and other data helps you drill down into detail that is more relevant to building a profile of your target company.

Ownership and historical data is critical to review. Detailed ownership structures can provide insight into the corporate group so you can consider the financial stability of the parent company. It’s also important for regulatory and national security needs. You’ll want to perform a review of owners, board members and agents against sanctions lists and for other regulatory infractions. From a national security perspective, you’ll want to understand the ultimate owner in the deal. Is it a foreign national? This could present serious concerns if the deal includes the acquisition or transfer of strategic assets, or intellectual property.

Historical data will give you a view of how the company has changed over time. Has it changed hands in a past deal? You can review deal commentary and rationale, which will help you better understand the strategic objectives of that deal, how the transaction was structured, financed and whether there were any regulatory or shareholder issues. You’ll also be able to assess how the company’s value has changed over time. Has its market share increased, did its brand value rise, or did it acquire more intellectual property? This will help you better value the company in the current market and its growth prospects going forward.

If your business is looking to sell, or you are advising a client on exiting their business, having access to historic transactions tailored specifically to your market can be a valuable tool. Identifying which firms are the most acquisitive, who is making the most investments and what are the trends in buying behaviors within your sector, on a global and national level, is an effective way to identify the right buyer for your company.

Globally Standardized Financials Are Essential For Valuations And Comparables Analysis

Globally standardized and reliable financial data is needed to compare deals across industries and borders. Access to data that links companies by industry classifications, trade descriptions, and primary and secondary business lines helps build a financial view consistent across deals. You will need access to essential financial information, such as year-end data for the closest financial year before the deal, post-deal financials, and if available for listed companies, interim data to help you compare deals.

Valuations based on actual deal value, if disclosed, plus the equity value, actual and modeled enterprise value, total target value and the native deal currency are essential. Depending on your model for valuing the company, detailed financials could include: consolidated and unconsolidated statements, target operating revenue, EBITDA, EBIT, profit before tax, profit after tax, total assets, shareholders’ funds, market capitalization and multiples for deal value, equity value, enterprise value, modelled enterprise value and total target value.

While the acquisition of data is a necessary first step, you can’t do anything with it until it’s delivered, integrated with existing systems and mapped accurately. You should look for a company that has the flexibility to meet your delivery needs. If you have proprietary applications already in place, data delivery could be transferring raw data into a data lake, or other platform, or providing you with an API that delivers data directly into your internal systems, where it can be mapped to internal data. Through a data integration process, third-party providers can attach unique and standard identifiers, like ISIN, or CUSIP codes, that can be applied to help provide a single, shared view of a record across the firm. Third-party providers can also provide solutions that marry a firm’s internal data with the provider’s data, and then deliver that combined view through off-the-shelf, or customized applications.

Considerations For Selecting A Third-Party Data Provider

When selecting a third-party data provider, a few considerations are important before you decide to move forward. First and foremost, does the third-party provider have a track record that’s proven and trusted? Can they provide timely, quality granular data that is not available elsewhere? Will the information they provide, like deal data, intellectual property data and corporate structures, help provide alternative, unbiased assessments as you work through your deal due-diligence process? Can your third-party provider deliver hard to access information, with the timeliness and granularity you’ll need to build a pool of potential targets and then select the one that is the best fit for your strategic objectives?

Contact us today if you’d like to learn how we can help you think through these considerations and how we can support your corporate finance and merger and acquisition initiatives.