Ongoing inflation and interest rate volatility poses risks to all industries and sectors. Now, more than ever, real time data insights are vital to help manage processes like mergers and acquisitions and financial planning in the current environment, says Theunis Voljoen, CEO of Prodinity.
“In particular, businesses are looking for ways to gain a clearer understanding of the developing credit risk on their balance sheets.”
From tightened forecasts and de-valued financial reserves, to re-evaluating the pricing of merger and acquisition (M&A) deals, the impacts of high inflation and interest rate volatility are being felt across sectors and industries globally.
In a data rich world, many larger companies struggle with complicated and lengthy processes to produce even the most basic levels of information to get a real-time litmus test of how these fast-changing economic pressures are affecting their business.
This is because huge amounts of information are stored in complex databases, requiring repetitive and time-consuming manipulation to make it useful, often via complex and unsupportable linked spreadsheets which are not always user-friendly, transparent or value-adding.
All too often, the information produced is inaccurate, inconsistent, lacking true granularity or simply out of date – resulting in poor business decisions. Now is not the time to be making a poor business decision.
Impacts on M&A activity
Take M&A for instance. The last 18 months have seen record levels of M&A activity, with global deal volume surpassing US$5 trillion for the first time in 2021. While dealflow remains strong, with rising inflation, supply chain disruptions and the war in Ukraine, the uncertainty posed by current market conditions is being factored into acquisition offers in a number of different ways.
We have now transitioned from what was a very seller friendly M&A environment just six months ago into one where buyers are calling more of the shots.
We are seeing lower purchase prices coming through the pipeline on deals, as well as updated finance conditions – sellers may see increasing instances of so-called “financing out” in the initial terms of a deal (or letter of intent), which would make consummation of the deal contingent on the buyer’s ability to obtain satisfactory financing.
Buyers are also increasingly proposing alternative payment structures that require less cash to be paid to sellers at the time of closing but more contingencies on future financial targets being reached for the acquired business – an “earnout payment” structure.
We are also seeing demand for longer exclusivity periods and more extensive due diligence prior to signing on the dotted line – allowing time for detailed due diligence reviews – and to the extent issues are uncovered, opening the door to negotiate appropriate purchase price adjustments.
M&A is just the tip of the iceberg
And due diligence is about so much more than just kicking the tyres – with renewed focus on challenging pre-acquisition requirements, it is vital to know that there are some serious and potentially very expensive due diligence pitfalls that often get overlooked when it comes to M&A.
This scrutiny over M&A transactions is also being mirrored in the internal scrutiny being applied to businesses in general as they approach 2023 budgets, financial planning and audits. Due diligence and data is the name of the game for internal monitoring and financial reporting too.
As we head into the fourth quarter of 2022 and as businesses plan for the year ahead, we are seeing strong interest in combined, structured data solutions that feed into more effective, real-time reporting and due diligence across an entity. In particular, businesses are looking for ways to gain a clearer understanding of the developing credit risk on their balance sheets.
Harnessing data to ride the economic wave
As interest rates and inflation statistics change almost weekly following the upwards trend around the world, the solution to getting the right information at the right time to make the right business decisions is readily available: data.
All businesses and organisations accumulate data; however, this often involves vast amounts of unstructured data stored in a plethora of systems and few companies have fully mastered the art of making use of that data to improve their bottom line. For accurate reporting, all relevant data must be consistently transformed and enriched daily, and stored in one simplified and reporting-friendly data structure accessible to business users via reporting tools of choice.
Experienced, expert insights are required to help re/insurers increase their profitability through better use of data and businesses need to be agile enough to harness and quickly act on the data they have when it becomes clear that a change of tack is required. This ability to react and adapt nimbly is an issue that has attracted increasing attention from a number of stakeholders in recent years including regulators, rating agencies and shareholders and one which companies must keep front-of-mind at all times.
The ongoing drive to digitise and streamline processes across sectors and gain invaluable insights from the data available is accelerating, and there is a real urgency to get this right. Companies need to be able to harness the valuable data that is locked up in their systems in order to accelerate business decision-making and improve their operational resilience and financial performance.
This is critical to building the reporting structures and insights required to create a more resilient and truly forward looking business that is acting on the most accurate information. Sustainable business models have data and digital innovation built into their DNA, and are able to evolve with the times.
The current economic volatility is presenting challenges for all businesses – and leaders must focus on data, data, data to navigate the choppy waters ahead.
About the Author
Theunis Viljoen is the founder and CEO of Prodinity Limited. He is an experienced and leading architect and designer of data warehouse and innovative business insight solutions delivered to the insurance intermediary, legal and other sectors. He is a qualified chartered accountant with Board level CFO, COO and CIO experience. Theunis has an enduring passion to help clients develop business transforming insight from their untapped data assets and resources.