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Axiom Report: The M&A Due Diligence Process Is Broken

LAS VEGAS, NV (May, 9 2017) – Seventy to ninety percent of merger and acquisition activity fails to achieve its goals. These failings are primarily due to the de-prioritization of deal integration and due diligence analysis. In-house lawyers understand these pre- and post-deal pitfalls, and are eager to affect change, but do not feel empowered to do so. Instead, they feel confined to due diligence box-ticking exercises, which add limited value to deal outcomes. These are the findings from The Deal Machine: M&A 2017, released today at The 2017 Corporate Legal Operations Consortium (CLOC) Institute by alternative legal services provider Axiom, in conjunction with Raconteur.

The Deal Machine examines how companies engaged in M&A activity can gain competitive advantages by taking a different approach to due diligence and integration activities. The report is based on a survey of 300 respondents (representing legal and commercial functions) from global companies with annual revenue ranging from $1 billion to more than $16 billion.

“Through our work with Fortune 500 companies, we’ve heard numerous stories about the limited role legal plays within M&A, and for that reason, we conducted this report to gain a more complete understanding of company behavior pre- and post- deal,” said Conor Miller, Head of Corporate Transactions Services at Axiom. “What we found not only validated those anecdotes, but, frankly, surprised us: even the world’s largest companies and serial acquirers lack an integrated approach to M&A. Our hope is that these findings will help shine a light not only on why so many deals fail, but on the opportunities for companies, of all sizes, to employ a different approach in order to realize a greater return from their transactions.”

The Deal Machine Highlights

Integration and Diligence:

Legal departments cite lack of integration as the number one reason deals fail (according to 58% of respondents), while also acknowledging that they are providing inadequate value to downstream teams focusing on integration synergies. In fact, over 85% of the lawyers rank issues related to the quality of due diligence, integration or the misalignment between those processes as the number one or two area where they could do better. Specific to diligence, 79% of respondents feel that input from the due diligence process isn’t effective in achieving deal synergies during integration, and 78% of respondents believe that M&A value would increase if due diligence were approached more strategically.

But though lawyers may understand the importance of integration (and the diligence that aids that integration), they do not see it as something they can influence, whether because of remit, expertise or capacity. As to the former, when asked where legal delivers the most value, just 12% said integration, suggesting in-house teams do not see it as part of their jurisdiction. The notion that integration is devalued is further emphasized by the fact that only 35% of respondent companies have a standardized integration team.

Process and Standardization:

The survey findings revealed two distinct areas hurting deal success: a lack of clear information (cited by 81% of respondents as a major challenge for the legal department within M&A transactions) and an absence of standardization (cited by 70%). On the former point, findings suggest that the information in-house lawyers need in order to execute a deal is not readily available. To note, only 21% of respondents felt they received useful, data-driven insights that enhanced the integration process.

As to the latter, the survey found that even some of the most active deal-making companies do not have a standardized deal playbook and are not leveraging best practices. Among companies that do more than two deals per year, almost 60% feel their processes are inadequate, despite recognition of the critical role standardization plays in M&A. These findings and others suggest that many lawyers feel they are operating using a bespoke model, crafting new processes for each deal, when what is really required is a standardized approach – particularly as deals grow in volume and size.

Technology and Partners:

The Deal Machine’s findings reveal that technology and data are under-utilized M&A resources, even though in-house teams have clear ideas about how tech should be used. Twenty-two percent of lawyers cite achieving enterprise targets through data alignment/output as their number one technology priority. (The number from organizations doing 10+ deals a year is even higher, at 80%). This was closely followed by technology capable of analyzing key contract data, cited by 21% of respondents.

More than technology, however, respondents cite a significant need for capacity and expertise. The Deal Machine discovered that some 64% of respondents feel they do not have enough people to realize their M&A aspirations, while 61% said they don’t have the right quality of people to do so.

That said, law firms are considered an ineffective solution to this capacity problem. In citing the reasons law firms fail to deliver value, 68% indicated that they still require a heavy investment from the in-house team. Cost was a noteworthy factor raised by 65% of respondents, as was the firms’ inefficient and manual processes (cited by 60%).

The report findings suggest that in-house legal teams know what is required to make a deal a success. By partnering smarter, strengthening their technology and improving internal processes, they can better harness the strategic value of due diligence and produce the kind of data that empowers other functions to more effectively capture synergy opportunities. Then, and only then, can the legal department deliver real value to the M&A process.

The CLOC Institute

Additional Deal Machine findings analysis will be revealed during Axiom’s session at The CLOC Institute – The Integrator’s Dilemma: How Legal Ops Can Help Drive ROI in M&A. The session will take place from 1:15-2:15 PM on May 10th at Bellagio’s Grand Ballroom.

Click here for a copy of the report in full.

About Axiom

Axiom, a recognized leader in the business of law, provides tech-enabled legal, contracts, and compliance solutions for large enterprises. Axiom’s solutions combine legal experience, technology, and data analytics to deliver work in a way that dramatically reduces risk, cost and cycle-time. The firm comprises 2,000 lawyers, professionals, process engineers and technologists who serve over half the Fortune 100 across 15 regions and 3 centers of excellence globally.

About Raconteur

Raconteur Media is a publishing house and content marketing agency. Raconteur produces special reports for The Times and The Sunday Times, as well as content marketing solutions for brands and bespoke market research. Raconteur combines premium editorial, analysis and graphic design with a commitment to high-quality executions in print and online across all of its services. Our content informs, inspires and influences thought leaders worldwide.


For Axiom:
Carrie Kalish

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