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Transforming the ‘science’ in the art and science of M&A

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Japan is one of the most technologically advanced economies and a global leader in many of the crucial underlying technologies driving the information technology revolution.

The country’s leadership in automated production technologies has also enabled the operations of companies in certain sectors, such as the automotive manufacturing industry, to truly transform.

Such technological leadership is, to some extent, occurring in the financial services sector, too.

Yet in M&A, the use of technology in key practices and processes seems to lag other areas of finance.

In fact, for Yoichi Yamasaki, a managing director at global investment bank GCA, he says while some advances have been made, the key M&A processes haven’t changed all that much in the past 20 years.

He does, however, believe some advanced technologies such as AI could be potentially transformative in certain areas. “The application of AI in due diligence should make the process much more efficient, and potentially significantly,” he says.

This would be good for anyone doing deals in Japan where deal execution can take a long time, and longer than in the other advanced markets such as the US, UK and core Europe, says Yamasaki. He adds that this is most often true when Japanese companies, or their assets, are being acquired.

“One of the reasons for that is because of the complex structure of many Japanese companies, particularly their operating subsidiaries,” says Yamasaki, adding that Japanese corporates are also generally unfamiliar and uncomfortable selling assets, which can make the execution more difficult.

Transformative technology

Technology is unlikely to be able to tackle that specific cultural issue, or indeed prompt a simplification of complex operating structures. But it can surely help acquirers, and their advisors, better visualise and understand complex structures, which may help speed up the deal process.

More broadly, Yamasaki believes that technology such as AI could potentially have a big impact on efficiency in an investment bank’s M&A advisory business. Yet, he is sceptical about the potential for any technology to ever replace the role of M&A practitioners.

For him, as others, this is because the M&A business is part science, part art, with technology potentially being most transformative in the more scientific areas of the process. These include researching and identifying M&A opportunities, as well as running price and valuation exercises.

“It’s in these areas where technology will have the greatest impact,” says Yamasaki.

By comparison, he says technology is unlikely to have as a big an impact in the more artistic part of M&A advisory work. “This part is more about trust and relationships, which only humans can develop meaningfully.”

However, that’s not to say technology can’t help there, too.

Indeed, because of the pandemic, trust and relationships have needed to be developed over digital platforms instead of in-person, highlighting the benefits of technology in enabling executives to meet and communicate with each other, says Keiichi Sakai, a managing director at GCA.

He adds the pandemic has caused a fundamental change in the way some of the important parts of M&A process are done. “Meetings and site visits to factories, for instance, can be conducted virtually, which has made the process more efficient,” says Sakai. “We expect meetings to continue to happen in-person in a post-Covid world, but we also expect more work to be done virtually, too.”

In time, a balance between virtual and in-person meetings will be struck. In the short-term, however, virtual meetings will likely be the preferred approach. And in the next year, there is likely to be a sharp rise in them as deal activity in Japan potentially hits a record high, says Yamasaki.

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