Can we really automate Due Diligence?

Due Diligence (DD) at present is essentially a human task – therefore has human failings, biases, and reliance upon historical experience of the person or the team completing the activity. It is also time and effort hungry – so is often a costly set of tasks for a PE to carry both at the transaction level, and to carry ‘in the business’ – i.e., the people who do the diligence activity. A target opportunity is identified, initial investigation completed, and a DD is brought to life if the stars align. Time, as they say, is not of the essence! So – what is this Automation thing that’s being talked about so much?

According to IBM – Automation is a term for technology applications where human input is minimized, but we clarify a bit more.

RPA – robotic process automation is a software technology that makes it easy to build, deploy, and manage software robots that emulate human actions interacting with digital systems and software. OK great, we can copy the way a person interacts with applications. So what? Well – to start off, diligence requires a large amount of diverse data collection often in environments where accessibility is problematic for many reasons.

Intelligent Automation (sometimes referred to as Cognitive Process Automation) takes a human lead, allies it with a strong automation base and the tools take over the heavy lifting – leaving the minds for assessment and interpretations of the more detailed information.

Automating multiple source data collection using advanced analytics – machine learning, natural language processing etc. – may identify patterns that could go unnoticed by humans, flag them, and then allow humans to (as suggested) make assessments, interpretations, and ultimately recommendations. All good for the standard corporate data, but what about the external non-corporate supporting information? – all that diverse, important, un-noticed market intel, news articles, trade journals, personal postings, social media musings from Execs, competitor info, new entrants currently under the radar?

Automating repetitive tasks like data collection from multiple sources, or analysis of large amounts of unstructured textual information that can be time-consuming and error prone for humans to absorb may help PE firms conduct both Technical Due Diligence and Commercial Due Diligence more efficiently by speeding collection and assessment, and identification of potential risks or opportunities that may have been missed otherwise.

Automation can be effective for technical and commercial due diligences to undertake tasks like:

• Data Extraction – Extracting data from diverse sources such as financial statements or regulatory filings to provide a comprehensive overview of the target company’s performance, assets, liabilities etc. – which assists Firms to gain an in-depth understanding and make informed decisions based on accurate information.
• Data Analysis – Analyzing data from various sources to identify patterns or trends that support identifying risks, opportunities etc. – to better understand the target company’s financial health and performance indicators which could positively impact their investment decisions. 

• Data Visualization – providing data visualizations that allow for easier recognition of patterns, trends etc. – making it easier to identify potential risks in due diligence process, better understanding the target company’s financial health and performance indicators which could positively impact their investment decisions.
• Data Integration – from various sources to provide an accurate picture or overview of potential risks, opportunities etc. – making informed decisions much more easily based on the most up-to-date information.
• Data Storage – storing data securely making it easier for private equity firms to maintain a clear and consistent record and create stronger audit trails on decision-making.

Thoughtful, effective, and well-executed due diligence is a key tenet of a successful transaction. Will we start to see Cognitive Process Automation making inroads to assist with these activities and other repeatable, scalable tasks across the PE environment? The answer is yes – and the smart players know they need to be ahead of the trend, not eliminated as a result of it.

At Uptrend labs, we have the depth of understanding and the technological know-how to guide you through the complexities of due diligence projects in IT & Tech, Products, Commercial & Supply Chain. Contact us to discover a new kind of collaboration, a new kind of approach to technology, and business, and of course, the best practices for ensuring you create real value and business potential from your next transaction.