M&A and investment banking – data-driven investing

2 min read

M&A and investment banking – data-driven investing

How do we keep up with the exponential growth of data? And how can we…

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How do we keep up with the exponential growth of data? And how can we make this data work for our benefit? These questions have been at the top of the agenda of business leaders for years and are now becoming a significant burden to players in the financial market. Investment bankers are not just confronted with challenges concerning liquidity and capital but also with technological disruptions. Data-driven, quick investment decisions, as well as improving sourcing for M&A opportunities, are now more relevant than ever. However, what implications, benefits, and adjustments data tools have for investment banking, within these challenges,  is still commonly questioned.

How it all started… 

Traditionally, investment bankers largely relied on their individual networks to identify new opportunities for their clients. The more valuable personal connections one had and the better reputation their investment bank was were almost guaranteed indicators of overall success. This method is increasingly being replaced by data-driven deal sourcing solutions driven by artificial intelligence. However, this shift is not entirely unexpected as evolving client demands and rising competition have led to efficiency pressures necessitating new ways of approaching deals. 

Better data, better investment opportunities?

Deal activity over the past few years has reached record levels with an all-time high of 60.000 publicly announced deals totaling $5 trillion closed in 2021. Making quick and informed decisions, while also discovering rare new portfolio opportunities have become key aspects of the investment practice. Clear is that in the current environment, speed and deal volume, influences deal success. However, more data does not immediately imply better opportunities. Raw data needs to be organized first and contain key information. Therefore, to rephrase, only quality and structured data lead to better investments.

For investment banks, data then present a source that leads and creates unique market perspectives. Data help discover the next promising company or startup that matches the client’s ecosystem, that is not easily nor readily identified by other competing firms. Yet, there is still room for investment banks to increase data usage especially when it comes to their mergers and acquisitions activities. The high number of transactions, the low data usage rate, and rapidly changing M&A trends will support (advisors both on the buy and sell-side data) in making deals happen. 

Data-driven deal sourcing

Strategic approaches to deal origination have become a top consideration of investment banks. Rather than questioning when to look for new companies and opportunities, the attitude has shifted to continuous monitoring and deal sourcing. A solid deal sourcing strategy is needed as closing a single deal requires a substantial amount of opportunities to be sourced and analyzed. Especially since, regardless of the declining company valuations by 20% in the second half of 2021, companies still manage to attract numerous investors at high valuations. 

To identify the next high-value investment for their clients and to know when to invest, new data platforms and tools benefit investment banks by streamlining the identification, qualification, and prioritization process. Not only the amount of, normally undiscovered, companies will increase but the time juniors and analysts spend sourcing deals will be minimized from weeks to just a few minutes. Essentially, deal origination employees will become industry experts in no time. This will lead to a huge amount of time being freed for other higher-value tasks. Therefore, a data-driven strategy can cut research costs and strengthen investment bankers’ decision-making process. 

What is to come…

Data-driven deal origination is the new way of deal sourcing, and it will have a ´ significant impact on investment banks’ deal sourcing strategies. Relation-based strategies will not be replaced, but the data-driven deal sourcing adoption rate will continue to grow exponentially. To improve data-driven company identification startups, like delphai, provide deal sourcing platforms that can significantly help streamline the process. The platform provides structured, compliant data for investment banks to use to discover and monitor unique leads.

Investment banks’ data-driven strategies will need to look for such new opportunities to source valuable deals more rapidly to keep up with the ever-changing market. Creating and maintaining a solid data-driven strategy is necessary for any investment bank.

Interested in streamlining your deal sourcing? Book your demo here.