While most of the Due Diligence Live event focused more on PE space and the financial state of M&A over the next 3-6 months, there were a couple of things to gleam. Bear in mind, the tech will come in eventually.

As expected everyone is twitchy about the upcoming elections (the US being primary, but not the only one) and a couple of wars creating uncertainty.  This would impact the upcoming regulatory environment (especially in the US).

Web 3.0, wait I mean AI, made a presence as well. Something about revolutionary, the next best thing since mobile, etc.

While the first point should be obvious, what may not be so obvious is whomever the winner of the US election is will impact whomever is heading the FTC: Lina Khan. Through her leadership, there has been an increase in the amount of scrutiny of M&A activity. This isn’t necessarily a bad thing, but that, plus the interest rate hikes, have made M&As challenging over the last couple of years. Most of Lina’s attention focuses on vertical scaling (think of the failed airline mergers as a big example) with the tech industry squarely in her cross-hairs.

Unfortunately, these vertical M&As are usually easier to integrate. While each business may have their own special sauce, the data and industry-specific tooling will be similar enough to not pose too many issues. This means more cross-functional expertise will be required (and/or additional training/staff retention). On the plus side, for companies that reach a certain deal size that requires reporting guidelines, this will extend the due-diligence period a bit prior to close allowing for the additional investigation and prep required. Bear in mind, nobody really knows what the Democratic nominee will do: whether she’ll continue to follow in President Biden’s footsteps or loosen the reigns a little based on her current donor base. Similar with the mercurial nature of the Republican nominee.

Once you get past the snark with AI, there was one comment that was made during the event that I found surprising. Given the amount of corporate involvement and investment over the last year since OpenAI unleashed their offerings to the world, the PE world still considers the space as venture tech. Mainly the big name companies are involved because they have the resources to throw at very expensive graphics cards and the datasets they’ve been collection on the users for years, but the smaller players are trying to catch up. Additionally, the target markets are both B2B and B2C.

Just looking at the B2B space, and if you and your target are both using Co-pilot, which is supposed to have datasets built on each company’s tenant, what would the integration look like? Do you need to have your datasets rebuilt using their data? Is it even possible to merge the two? If you’re acquiring a divested company, how do you keep the data scoped/limited to them while they “forget” about the data you just acquired?

If you think this will cause you headaches, imagine your legal department.

What do you think about this? Is there something glaringly obvious that is being missed, or other potential considerations?

cab