Business Intelligence as a Mergers & Acquisition Tool

As the global economy begins to recover and banks begin to issue more credit for business deals, the number of mergers and acquisitions (M&A) should increase substantially. In any M&A deal, the due diligence phase requiring vast amounts of data is often the most difficult. Consider the value of financial tools that would provide great insight to the nature and condition of a business serving as the target of a merger or acquisition. Business intelligence tools can provide a tremendous amount of relevant, customized information for the acquiring organization. Broadly defined, business intelligence (BI) is the term given to the process of producing relevant and insightful business data from various, often unrelated, sources. Think about the information needed to make effective business decisions for an organization. Then consider that the data is probably available somewhere, but often residing in systems that cannot talk to one another. This can be a very frustrating realization. Business intelligence, however, can be the framework that will bridge the gap between systems, spreadsheets, and other obstacles to effective information management. This can be especially true in determining if two organizations are as well matched in detail as they appear to be on the surface.

In its most elemental form, business intelligence is simply a method of gathering and validating information from various parts of an organization in order to provide unique business insight. Think of the traditional information available within your company and the limits placed on the data by various systems. Useful information cannot be combined in ways that would be most beneficial because the systems containing the data cannot talk to one another or the information has not been formatted in such a way as to simplify the use of the data. New systems do not talk to legacy systems. Spreadsheets are sometimes developed to bridge these information gaps, but they are generally not automated for real time availability and they frequently contain data that has not been validated. These segments of information that cannot relate to one another are often called “silos”. The object of business intelligence is to provide a framework for cross-siloed data relationships.

Once the relevant data is obtained and validated, it can be used for any number of purposes. Traditionally, this data is used by CEOs, CFOs, controllers, and other business professionals in pre-formatted real time data characterizations (often in simplified presentations called dashboards). Consider the uses available to a trained professional if these information tools are framed in broader terms and nontraditional applications. Any project requiring significant data and due diligence could be a candidate for business intelligence tools.

One clear business need requiring massive amounts of information, due diligence, and insight could be a mergers and acquisition (M&A) project. M&A projects ultimately are performed to determine if companies that superficially appear to be a good match are, in fact, financially compatible. Given the magnitude of effort and funds expended to determine the viability of a merger, and the enormous costs involved such a project, business intelligence can be a small portion of the total budget. Properly formatted data derived from the appropriate application of business intelligence tools could provide critical information indicating the need to proceed, modify, or terminate M&A negotiations. Therefore, the return on investment for a BI project tied to the due diligence phase of an M&A project could be substantial.

Business intelligence applications are especially well suited to any projects that require large amounts of information. In many organizations, business intelligence is considered an IT Department function because of the technology required to reach and format data. However, this view restricts the ultimate objective of business intelligence, which is the effective use of information. Finance can be, and in many cases should be, the driving force behind the use of business intelligence tools. In most cases, like the M&A scenario presented here, the CFO will work closely with the CEO and other primary executives to determine if the merger should go forward, and on what terms. Consequently, BI should be considered a major finance tool with a definable return on investment.

Think of the “bad” mergers that have been well documented in the news and the enormous amount of resources wasted in these deals. Could a more effective due diligence process providing more insightful information have caused many of these deals to have been called off? Most would agree that better insights in to the target business would provide a much better framework for effective decision-making. Well designed business intelligence applications can be the means to a happy and profitable merger.