How Corporate Legal Departments Can Use Data Analytics to Help Select M&A Advisors

By Meg Vernal and Caroline Yoon

In-house legal departments are reporting an increase in corporate transactions as the global economy rebounds from the pandemic-induced reduction in M&A activity, according to Gartner’s 2021 survey of corporate legal departments. The survey also found that in-house counsel expect that an increased use of advanced technologies, such as applications that leverage big data and new machine learning tools, will allow them to manage M&A work more efficiently in the years to come.

One of the more exciting examples of how emerging technologies are driving greater effectiveness and efficiency in the way that corporate legal departments manage M&A work is the use of data analytics.

Two-thirds of corporate executives surveyed by Deloitte this year use data analytics as part of their M&A analysis, and more than 80% predict that data analytics will become increasingly important in the future of corporate M&A. In fact, four in 10 respondents said they now view data analytics as a “core component” of their M&A workflow.

Of course, the use of both predictive and prescriptive analytics to improve decision-making is not a new concept to in-house counsel. Data analytics were considered a “priority” for almost 60% of corporate counsel offices back in early 2019, according to HBR Consulting’s Law Department Analytics Survey Report, and in-house counsel were already gravitating toward applying data science to do more complex tasks at that time.

The moment has arrived for data analytics to power corporate M&A decision-making to a new level of clarity and sophistication. There are a wide range of examples showing how data sets are now richer, allowing companies to gain a more robust understanding of how to screen for targets, conduct deeper dives into financials and better manage the M&A negotiations and deal workflow. But one of the more overlooked illustrations is the value of data analytics to help corporate legal departments assess and select M&A advisors for their companies.

Here are five ways data analytics can uncover valuable business intelligence to assist with the evaluation of potential M&A advisors.

1. Industry Expertise

A key consideration is how much M&A work a potential outside advisor has done previously in your industry. This industry-specific expertise may prove essential when understanding nuances and emerging trends in your space. Data analytics and special practice notes from legal research providers can allow you to screen for M&A advisors who have completed the most deals in specific industries.

2. Fee Structure

Just as corporate deals can be structured in a variety of ways, there can be significant variance in the way different M&A advisors structure their fees for working on those deals. Data analytics drawn from completed deals can surface important information about how potential advisors charge for their work and how they compare with other advisory firms under consideration.

3. Size of Completed Deals

Another key factor to consider is whether the M&A advisors you are evaluating tend to work on deals of a similar size as the one your company is contemplating. Leading-edge data analytics tools, such as Practical Guidance for Market Standards from LexisNexis®, allow you to drill down into the transaction value of completed deals handled by each of the firms on your list of candidates—as well as provide you with a granular look at how their average deal size may have changed from year to year—to help guard against a mismatch with your advisory needs.

4. Fairness Opinion Only Fees

A company engaging in an M&A transaction may ask its financial advisors to render an opinion as to the fairness of the financial consideration to be received in the deal. This is an important function in compliance with a board’s fiduciary duties—and corporate legal departments may want to consult expert resources to help them navigate this process—but it has a very different scope from negotiating, structuring, securing financing and closing a merger or acquisition, resulting in different fee structures. Data analytics can help you ascertain trends in fee size for engagements in which advisors only provided fairness opinions.

5. Terminated Deals

A potential warning sign to flag in your assessment of prospective M&A advisors would be the discovery that an unusually high percentage of the deals on which they advised were terminated. Data analytics can provide you with insights as to how frequently the firm you are evaluating has worked on deals that were not consummated, and the best of these tools can even surface public documents that help you drill down into the reasons for the deal terminations, such as a superior proposal or a shareholder “no” vote on the deal.

Data analytics are an exciting and powerful information resource available to in-house legal professionals who oversee corporate transaction activity at their companies. They are learning that robust analytics can improve their M&A decision-making in a variety of ways, including the assessment and selection of the professional advisors they engage to assist them in the execution of these important transactions.

For more information about how to determine the scope of an M&A advisory firm’s work and to download complimentary guidance on engagement letters to use with your M&A advisors, please click here.