Data &

Analytics
in M&A
A new weapon in the
modern deal maker’s armoury

May 2018

KPMG.com.au
 Data & Analytics in M&A B

Record share market prices are creating

high price expectations in M&A, increasing
risk for buyers and advisers alike.

There is greater competition between

traditional and non-traditional bidders; both
types of acquirers are sitting on record levels
of cash to invest. Aggressive bidding wars have
become the norm. As deal timelines continue
to compress, bidders have limited time frames
to evaluate highly sought after targets. Many
acquirers are currently under tremendous
pressure to justify high-multiple deals without
the time to reinforce their investment case
with the necessary conviction.

At the same time the landscape for M&A transactions is

changing. The proliferation of data over recent years has yielded
the opportunity for deeper fact-based due diligence insights.
Increasingly, buyers are using quantitative and predictive insights
generated in the due diligence period to support their value
hypothesis, where previously the support would have been
largely qualitative.

A recent KPMG Australia survey noted “Big Data opens up

a new world of business opportunity for those ready to deploy
and enhance commercial offerings on the back of new insights”.

It seems the modern day Dealmaker is increasingly turning to

technology to get the winning edge. This article explores how
we see the most progressive and agile of investors leveraging data
and analytical techniques as a new weapon in their M&A armoury.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 1

Information
challenges continue
to plague buyers
Buyers in an M&A process are at an inherent and continue to rely on traditional, manual,
information disadvantage, often with limited and defensive methods of performing due
time to digest significant volumes of data to diligence. Focusing on historical earnings
form a view on the opportunities and risks of and using data summarised in an Excel
the target, whilst in some cases navigating spreadsheet is not the approach that
carefully curated data and messaging from will yield results that companies need to
the vendor and their advisers which tends succeed. Acquirers need to adopt a more
to camouflage the negatives. sophisticated, technologically advanced and
data-driven approach to gain a competitive
Despite today’s more intense deal edge in the bidding process and to realise
conditions, a large percentage of acquirers a deal’s full value post-close.
have not evolved their due diligence tools

“Our M&A transformation agenda has been driven by

the need to entrench, in our teams, tools that leverage
increasing volumes of data and new technologies to
provide superior insights. This is the new norm, clients
expect us to push them to evolve.”
David Heathcote
Head of Corporate Finance,
KPMG Australia

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 2

Data like never before,

but not all data is equal
The changing landscape of disruptive A myriad of data sets are created by
technologies and scope of digitisation companies often in a spontaneous and
continues to accelerate and expand into the unstructured form, such as social media
21st century. More data is being created chatter, CRM data, user behaviour, customer
today, than throughout preceding history in service tickets and other transaction related
totality. A recent whitepaper estimates that information. Analytical techniques need
by 2025, the global data sphere will be 10 to adapt to ensure the source, speed,
times what it was in 2016. volatility and perishable nature of the
data is considered when obtaining and
Global data sphere 2016 – 2025 analysing the data for patterns or predicative
characteristics.
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“This magnitude of change can be overwhelming, leaving many

trying to redefine emerging challenges in familiar terms or
double-down on proven, old behaviours. However, this new
digital revolution era, like the major technology-fuelled eras
before it, demands a new approach and with it the creation of
tools/systems that can ingest, interpret and analyse data sets.”
Anthony Coops
KPMG Partner in Charge,
Lighthouse1

1. KPMG’s Centre of Excellence for Data Analytics.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 3

+ Childcare case study

Development/acquisition
Existing portfolio
opportunities

Internal information:

• Historical financial performance

• Childcare centre data (e.g. size, capacity)
• Attendance information
• Contract information

External information:

• Demographics
(affluence, # of working parents)
• Locations
(proximity to other centres, proximity
to workplaces or modes of transport)
• Other publicly sourced information

As part of a recent process where KPMG acted on the sell-side for one of
Australia’s leading child care operators, millions of records of data were combined
from multiple sources to extract site specific attributes, attendance details (before,
and after school care), fees and direct operating costs over a three year period.
Building upon the company’s site data, external demographic and geospatial data
was overlaid to build a predictive model that could project site performance.

KPMG’s predictive model was combined with data on Australia’s school population
to identify potential areas of growth. In addition to identifying schools with
favourable demographics that are likely to yield superior financial results, the
potential earnings projections were also calculated and compared on a site by
site basis. This analysis was triangulated with management’s internal analysis
(prepared manually and involving significant management input) to provide
external validation to management’s growth plans.

In the end there was >90% correlation between management’s plans and the
data-driven approach, with the external substantiation proving highly effective
in providing buyers with due diligence comfort over the growth story.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 4

Analytical tools applied

in M&A transactions have
advanced significantly
As the data sphere grows, there has been rapid advancement
in the analytical tools and technologies capable of ingesting
and analysing this data.

We are seeing this deployed in many ways across the M&A cycle, from initial identification
and screening of opportunities, through to enhanced due diligence in-deal, and ongoing
value realisation post-deal.

1 Deal identification & screening

Today’s analytical tools are built on more According to a recent KPMG study,
sophisticated platforms for enhanced 60 percent of respondents used accounting,
processing power and use more finance, or strategy professionals to analyse
sophisticated analytical techniques that data in M&A, and 29 percent used data
provide acquirers with exactly the types analysts or business intelligence analysts.
of information that can help them make
meaningful and more accurate projections. We are seeing a discernible trend of serial
As part of the evolution of these new tools, dealmakers deploying more sophisticated data
there has been a shift away from traditional analytic techniques in identifying opportunities
corporate finance professionals looking at and screening the short-list of potential
Excel spreadsheets to a more advanced acquisitions. In years gone by an analyst
team of data scientists and technology was simply directed at a sector by their senior
engineers sorting and analysing data into colleagues based on gut feel and intuition,
useful components. Deal professionals now and challenged to come up with potential
need to be able to understand and utilise acquisition targets capable of yielding an IRR
these tools and MBA programs are currently above a certain threshold. Weeks later the
developing dedicated courses that focus on exhausted analyst proudly presents his or her
the application of data science to real-world list and then is surprised to see a sizable deal
business problems. announced in the sector the next day that
hadn’t featured as a possible target!

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 5

We are now seeing more sophisticated Solutions Showcase – High-level overview

investors automating the screening process of opportunities
Target Value Platform (‘TVP’)
through the capture, triangulation and analysis
of financial and non-financial data. This might KPMG’s TVP tool is designed to leverage both
include social media sentiment or a slight internal and external data sources to enable
intimation of ‘something new’ hidden within a client to identify potential areas of value
news articles. This data is often captured in a business across, pricing, procurement,
in a spontaneous manner and unstructured operations, support functions, capex,
Real time data
format, but when combined with data working capital and financing.
interaction
mining and text searching techniques,
The tool is typically deployed at the
it allows potential acquirers the opportunity
investment screening stage to rapidly
to incorporate this proprietary intelligence
qualify opportunities and focus the deal
into existing forecasting tools, evaluation
pursuit efforts on businesses with the
methodologies and/or investment hypothesis.
most upside potential.

It is then used to direct the due diligence 3-day ‘hot spot’

analysis
process into proving up the hypothesis, and
can serve as a roadmap for value realisation
post-acquisition.

+ Case Study: Property investment screening

KPMG recently developed, in partnership with a leading global property funds manager,
a tool to identify global commercial property investment opportunities matching a set
investment criteria by screening macro, demographic and societal data overlaid with
text scraping technology.

Over the course of six months it was able to develop a tool that automated the
identification of opportunities in multiple jurisdictions freeing up the time of analysts
to focus on a high quality pipeline rather than ‘boxing at shadows’.

“TVP is a market leading approach to identify EV uplift and

positive cash flow opportunities in a transaction environment.”
A recent client used the TVP framework to identify an EV uplift
of 100 percent which,accompanied with an implementation
plan, allowed the company to undertake strategic planning
knowing what needed to be achieved, by when and the
potential value from each initiative.”
Carl Gunther
KPMG Partner,
Restructuring Services

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 6

2 In-deal execution

Firms like KPMG now have analytical tools summarised data sources before analysis
that can now transform massive volumes could begin (often compounded by challenges
of raw transactional data into meaningful around data completeness and integrity),
financial and operational insights in record this time is now spent analysing the outputs
time. This has shifted the way deal teams and having in-depth discussions with
operate, where previously a large proportion management supported by factual analysis.
of time was spent collating multiple

55%
Over 55 percent
70%
Almost 70 percent
of respondents said that data of respondents said their companies
& analytics was a critical component received raw data from the target and
of their due diligence. used their own team to analyse the data.

Solution Showcase – What is the recurring customer

Strategic Profitability base and what trends are there
Insights tool (‘SPI’) in volumes, price and margins?
KPMG’s proprietary SPI process works to
produce uniquely powerful insights on a what products are new
business’ revenue and margin performance, customers buying and are
all based on a download of raw transaction these the same as the recurring
level data. SPI rapidly produces detailed customers?
standardised reporting and enables bespoke
analysis to better understand the business. what impact is a certain region
having on sales and margin?
By quickly analysing revenue and margin
by customer, product, geography and how is product mix changing
channel, examples of the insights that and what impact is that likely
SPI gives a buyer are:
to have on future margins?

what is the underlying

movement in price and volume
without the distortion caused
by mix or currency movements?

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 7

Using SPI enables buyers to have a more The approach has been useful in businesses
detailed understanding of the many layers with little or no consolidated reporting
behind revenue and sales performance. The or where currency is impacting results.
tool was developed with the private equity Often the existing management reporting
investment community as an early adopter, framework is sub-optimal for a due diligence
but we are now seeing corporates adopt the process, and using SPI enables a single data
technology at an increasing pace, and across request from which a large body of analysis
multiple different industry segments. can be performed.

SPI has been used across the M&A

transaction lifecycle (e.g. equity story
development, due diligence phases and post
deal) and is increasingly being used to support
companies in restructure or turn around work
and even debt funding discussions.

“We are constantly identifying other benefits as SPI becomes more

engrained in our processes. These include analysis on a constant
currency basis, identifying hard to spot earnings adjustments,
understanding mix and margin impact and validating (or
otherwise) Management’s story. The conversations we are having
with our clients are richer and deeper, allowing us to deliver more
focused analysis, advice and due diligence outcomes.”
Stewart May
KPMG Partner,
Transactions

+ Case Study: Closed loop pallet recycling

As part of a recent process where KPMG acted for a buyer of a closed loop pallet
recycling business, SPI was deployed to analyse millions of transactions from around
the world to validate management’s thesis around the underlying trends in the business.

The vendors’ claims around growth in volumes and pricing were subsequently proven
to be misconstrued when the underlying transaction level data peeled back the distorting
effect of currency, new customers and mix changes. This led to a reassessment of near
term forecasts and ultimately changed the deal structure to push a greater component
of the price into an earn-out mechanism.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 8

3 Post-deal value realisation

M&A professionals should also be aware Leading acquirers continue their diligence and
that data & analytics is much more than a intelligence gathering even after the deal is
one-time-use disposable tool that is limited signed and executed. This approach maintains
to the diligence stage of a deal. While the the data sets and analytical tools established
capabilities of data & analytics in the M&A during the diligence phase and continuously
context have advanced considerably in the updates the analytical process as the merged
last few years, not every deal professional is entity’s business continues to operate and
aware of the tremendous value these tools newer data is generated.
can provide to acquirers in the post-sign,
integration, and value creation phases
of a deal.

+ Case Study: Motor vehicle finance and insurance broking

Following the acquisition of a motor vehicle finance and insurance broking business by
an industry player, the acquirer was seeking to continue presenting the due diligence
insights on a semi-regular basis to compare trading performance post acquisition against
the value hypothesis at the time of acquisition. The deal team applied a data and analytics
approach that the company could not perform with internal resources to understand
branch level performance, including the number of loans written per broker, insurance
cross sell rates and individual broker performance, where previously this information was
reported either anecdotally or not in a format suitable for C-suite executives.

The analytical tools set up during diligence for As new insights are generated during the
the M&A evaluation can also be included in integration and value creation phase, new
the company’s everyday business intelligence business optimisation opportunities, as well
platforms and processes to retain the key as risks, will arise. Continually being exposed
insights and data sources that underpinned to and understanding important business
the deal thesis and value creation plan. Doing data points gives companies the opportunity
so enables acquirers to continuously enhance to quickly adapt to new situations and to
their outlook and predictions on future capitalise on new opportunities.
performance, then iterate on the preferred
new course of action to achieve their deal
objectives.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
 Data & Analytics in M&A 9

Conclusion
Today’s data and analytics tools are evolving rapidly and
have become a key component in the M&A process.

Leading acquirers are using these tools to harness

the value of multiple and varied data sources and the
power of advanced analytics to adapt a more offensive,
growth-oriented mind-set to gain deal conviction,
even in time pressured situations. In addition, leading
acquirers extend the use of data and analytics from deal
evaluation into the post-sign integration and post close
value creation stages.

In summary, the competitive benchmark has been

raised. The modern day Dealmaker has lifted their
game and harnessing data is the new weapon.

© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss
entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation.
Contact us
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Deals Tax Legal KPMG Lighthouse Deals Tax Legal
T: +61 2 9458 1560 T: +61 3 9288 6451 T: +61 8 9263 7104
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© 2018 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved. The KPMG name and logo and are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional
Standards Legislation. May 2018. QLDN16635MC.