2. The speed of digital deals
When we looked at how long it took digital/tech and non-digital deals to progress from announcement to completion, we found that, on average, digital/tech acquisitions closed quicker (24 days vs 46 days). Even at the top end of the market this pattern persists – the average $5bn+ digital/tech deal, for example, took just 147 days, more than seven weeks faster than the comparable non-digital transaction. There were 40 such digital/tech deals over the nine-year period in our study.
This discrepancy might be explained by the fact that digital/tech businesses are often younger and ‘leaner’ in terms of their asset portfolios, people and contracts, and as a result there may be less for buyers to work through between announcement and signing. However, as deals are often announced and signed simultaneously, our data reveals more about how quickly deals move from signing to closing – and through regulatory clearances – than how long it has taken to prepare for signing.
Use the arrows to progress the story – or click the graphic to explore the data
The hidden challenges of digital M&A
In fact, preparing for signing can be challenging. Digital/tech businesses often carry hidden complexities that require a tailored approach to due diligence and deal structuring. They may have complex risk profiles due to their fast growth, new business models and tendency for lower legal spend, while much of their value may be tied to intangibles such as know-how, software or data that will need to be secured. Simply applying the standard M&A process (reviewing contracts for familiar pitfalls and assuming a generally static regulatory environment) risks missing many of the most important exposures and value drivers associated with a digital/tech asset.
In addition the targets themselves are less likely to be ‘carve-outs’ (ie divisions that have to be separated from a larger entity to create a stand-alone business). The carving-out process can extend deal timelines due to the challenges of splitting assets, systems and intangibles.
The relative speed of closing digital/tech deals may also be down to the fact that many involve companies buying businesses outside their own industry, and they therefore don’t raise the sort of vertical competition concerns that can take time to resolve between signing and completion.
Having said this, we might expect the time it takes to do a digital/tech deal to rise in the future due to the emerging antitrust and foreign investment risks outlined in Part 7. Authorities are increasingly shifting their thresholds to catch deals by reference to value rather than just revenue, and are introducing new rules to limit the perceived threats to national security posed by foreign investments in particular technologies.