The European real estate sector continues to flourish but competition for deals is fierce and speed is often of the essence: so much so that, according to recent Drooms research¹ over 50% of real estate professionals in Europe are compromising on the quality of their due diligence to complete transactions quickly.

However, modern technology has a solution for those seeking to complete real estate deals more efficiently. Where time pressures have led to a potential decrease in the quality of due diligence, parties to a transaction have found a solution in technology enabled with artificial intelligence (AI), such as virtual data rooms.¹

Real Estate is big business

According to a Real Capital Analytics (RCA) report published in February 2018, Europe’s commercial property investment market returned to growth in 2017² as deals of more than €500 million in value accounted for almost one quarter of the year’s acquisition volume. The UK also regained its title as Europe’s largest market after its investment volume increased by 12% thanks to several large transactions such as CC Land’s purchase of the landmark Cheesegrater building for £1.15 billion.

Successful transactions like this depend ultimately on high quality and detailed due diligence but despite the high volumes of information that need to be processed, the real estate sector is still behind the curve in terms of technology and a significant number of important processes are still conducted manually.

The volume of documentation involved in real estate due diligence continues to grow exponentially and it is becoming increasingly important for key stakeholders to quickly and efficiently navigate their way through the mass of information involved and to focus on the key points.

Our survey¹ clearly shows that over the past two years there has been an overall increased focus on due diligence and 73% of real estate professionals believe this focus will increase further over the coming year. For this reason, AI is increasingly being regarded as a solution for today and not technology for the future.

A closer look at the benefits

More than half (54%) of real estate professionals say that they use AI to improve the keyword search process when working on transactions. However, this figure rises to 69% of respondents who say they will be using AI for keyword searches in five years’ time. Other processes that will become more widely used include foreign language translation, identifying red flags, routing documents to the right decision-makers and topic-modelling.

The majority of real estate professionals believe that AI already benefits their firms’ and provides a competitive advantage by enabling a much higher volume and variety of documents to be searched at high speed. Almost the same number say that AI speeds up the due diligence process, while a third believe it improves the accuracy of decision-making. Other benefits of AI include minimising risks and liabilities in an overall deal, reduced reliance on legal services, the ability to automatically create contracts and reports and securing the best deals before other professionals.

The barriers facing AI

Despite these benefits, there are still perceived barriers preventing the uptake and use of AI in the real estate industry. The biggest of these is lack of confidence in AI’s ability to match human intelligence and decision-making (cited by 53%), followed by a lack of skills available to implement relevant AI technology (51%), technology being too difficult to use (41%), a lack of trust by senior management in AI (19%) and concern that AI will replace investment professionals’ roles (17%). Only 9% say the main barrier is a ‘lack of demand’.

What does the future hold?

As a pioneer in the digitisation of due diligence in real estate, Drooms’ technology is helping to change existing processes by integrating AI into its virtual data room (VDR). The aim when building AI into our VDR technology is to enable real estate professionals to reduce the amount of manual review work, eliminate unnecessary errors and reduce reliance on expensive third-party costs. We are just one example of the application of AI, but a very good one.

Crucially, this is not a battle of technology versus humans. Despite its ability to automate a tremendous number of processes, AI will always work best in conjunction with human skills and intelligence. AI needs to learn from human behaviour and there is no substitute for years of experience, instinct and knowledge. However, AI complements those elements and adds huge value by making real estate processes much more automated, efficient and cost-effective.

Website: https://drooms.com/

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¹Source: Drooms, April 2018 - The future of artificial intelligence in real estate transactions April 2018

²Source: Real Capital Analytics February 2018 - 2017 Year in Review edition of Europe Capital Trends.

Finance Monthly speaks with former tech entrepreneur Gary Moon, who turned tech investment banker 16 years ago. He is currently the Managing Partner of the boutique investment bank Nfluence Partners, which focuses on M&A and capital formation advisory across various technology, media & telecom sectors, as well as having a new growth capital fund for mission-aligned businesses.

What challenges arise in advising clients on their M&A strategy given the fluctuating nature of the sector?

If you are not active in the market across a significant number of assignments, it can be difficult to understand the nuances of what drives buyer behavior in various technology sectors where valuations can range from < 1x revenues to > 16x revenues. You need strong historical understanding and pattern recognition on how technology adoption cycles impact M&A. With the lack of an IPO market, consolidation of middle market companies by the tech elites and significant increases in private equity activity in the tech sector, the dynamics of what attracts various buyers and the valuations that they will pay shift regularly as well.

What have been the trends in the corporate M&A sector in the US in the past twelve months?

Over the past year, we’ve noticed that strategic acquirers are more selective and require a higher degree of strategic value to transact. The long-term trend of pursuing companies of more meaningful scale has continued, while a mix of deal consideration to ensure management continue for several years post-acquisition is also increasing.

What issues can bring a deal to a standstill? How would you overcome these?

The biggest and most common issue is missing revenue forecasts. While one can be optimistic, it is more important to have a realistic set of projections that can be delivered within a few percentage points of accuracy. The other common mistake for companies that are not well advised is not getting in front of bad news. Diligence teams are thorough and you can count on them to find any outstanding issues. Better to deal with them up front than to have a surprise as you are trying to close a transaction. Otherwise, not only will you have to deal with the issue, but you’ll also have to deal with the breakdown of trust given the lack of disclosure.

What advice would you give to a company considering a potential merger or an acquisition?

Make sure that the most likely companies to acquire you know who you are in advance through partnership or other market-based activity. The majority of transactions happen between companies that know each other in advance. It also provides you potential competitors in the sale process, as you do not want to be in a position where you are only negotiating with a single party for your acquisition.

What are the companies that Nfluence works with?

We work with expansion and growth stage companies across a number of sectors within TMT including both venture ecosystem and entrepreneurially financed. We are also excited about working with growth stage companies in the purpose economy - mission-aligned and/or impact-driven. These companies tend to have unique requirements from capital formation to acquisition and liquidity and we are spending a lot of time working in and developing this ecosystem.

About Gary Moon & Nfluence:

Spun out in 2018, Nfluence was originally founded in 2011 as the Technology, Media & Telecom (TMT) group at Headwaters MB. Gary Moon and his partners built Headwaters into a top 10 technology-focused boutique investment bank ranked by closed transactions in 2017. Over the past 12 years, Gary and the senior team at Nfluence have managed the completion of nearly 200 transactions, repeatedly demonstrating tenacity, creativity and effectiveness on behalf of their clients. Gary has been a strategic and financial adviser to numerous technology and growth firms and has extensive experience with both institutionally financed and founder financed ventures. Gary has advised on client exits to such prominent companies as AT&T, Cisco, Equifax, Microsoft, Nuance, Tyco International and WeWork, and has helped firms raise growth capital and complete private equity recapitalizations from name brand institutional investors.

Prior to joining Headwaters, Gary was the Managing Director of Europe for Ridgecrest Capital Partners, a boutique investment bank focused on technology mergers & acquisitions. In this capacity, Gary led the efforts of the firm in growing the European practice which ultimately comprised a significant percentage firm’s revenues. Prior to joining Ridgecrest, Gary led the Mobile, Wireless and Communications Technology practices for Viant Capital, a boutique investment bank in San Francisco. Prior to embarking on his advisory career, Gary was the founder and CEO of Luna Communications, a North American focused wireless systems integration firm. Luna Communications was sold to a publicly traded competitor, where Gary became the CTO and Managing Director of Client Services.

Wesbite: http://nfluencepartners.com/

Cryptocurrency has been arguably the big financial breakthrough of the past few years and in 2017 it really took off, led of course by bitcoin. The potential of such digital currencies and the technology which powers them has created the Internet of Value. But when does control lie within these spheres?

While both have created a lot of buzz and interest, the future of cryptocurrency remains unclear. Changes introduced buy them both have offered many fresh opportunities for businesses as RSM reports, with the middle market especially holding  a lot of power to take advantage of these developments and improve their futures.

Introducing the Internet of Value

The Internet of Value essentially refers to the allowance of value transactions (such as sending a foreign currency overseas) to be made almost instantly over the internet. It aims for value to be transferred across the internet at the same rate as information and such a goal is being worked towards and slowly met thanks to the development of blockchain technology.

Most cryptocurrencies use blockchain to power their transactions. This is the first technology which allows one asset to be transferred from person to person directly, without having to use a middleman such as a bank, marketplace or third-party service. Therefore, nothing is standing in the way to slow the process down or disrupt such financial transactions.

It’s not just cryptocurrencies that are adopting blockchain technology, Nasdaq are using it to enable firms to manage shares, the Estonian government has used it for looking after healthcare records and more. These all help support the Internet of Value’s mission though there is still work to do. Few blockchains are connected which means not all information can be exchanged, let alone instantly, so greater adoption is required which the middle market could provide.

The Middle Market’s Influence

Referring to those growing businesses that occupy the space between start-ups, small firms and SMEs and giant global corporations, it is the middle market which needs to innovate to take that next step up. Already some ecommerce companies are beginning to integrate cryptocurrencies within their model as they help with fraud prevention, are quick and secure.

There are many start-ups using such technology and involved in the Internet of Value. While this does provide some uptake and investment in cryptocurrency, in order for it to really take off much more is needed. Middle market companies can offer this, using the benefits of the Internet of Value to speed up their payment processes and increasing the security through cryptocurrency acceptance and usage.

Given there is no middleman required, this can help cut the budgets for many, allowing this money saved to benefit these businesses while providing investment in cryptocurrency and its technologies. If there is no uptake from the middle or upper market then the Internet of Value and cryptocurrencies may just remain an interesting concept, used only by smaller investors and businesses.

Unless there is great investment from another source then the middle market does look like it could control the future for the Internet of Value and cryptocurrency as a whole.

The majority (80%) of organisations have expressed interest in using cryptocurrencies - such as bitcoin - for business transactions, despite widespread fears of being compromised by associated DDoS attacks, according to new research from the Neustar International Security Council (NISC).

While 48% highlighted alternative forms of currency as a way to generate income through potential increased value, 26% of businesses also pointed out the heightened risk of currencies being used as an alternate form of ransom.

This ongoing fear has encouraged the majority of organisations to focus heavily on increasing their ability to respond to DDoS (41%), ransomware (40%) and targeted hacking (39%).

This new data has been revealed as part of a bi-monthly research series from the NISC, which has polled 255 IT security CTOs, VPs, senior directors, business managers and other professionals with a security remit across Europe.

The NISC research findings have also been used to calculate a unique Cyber Benchmark Index, which measures the level of concern in the NISC community of security professionals about the current international cybersecurity landscape. Based on the latest set of data, the index figure has reached 10.5, a considerable increase from the 6.5 rating in May last year, and 0.4 points higher than the last report in November.

From November to December, DDoS was seen to be the greatest concern to businesses at 22%, with financial and ransomware following close behind. However, ransomware was most likely to be perceived as an increasing threat to organisations, with 45% listing it as their greatest concern moving forward.

Rodney Joffe, Head of NISC and Neustar Senior Vice President and Fellow, commented on the findings: “Ransomware and DDoS attacks continue to be seen as the leading threat to companies due to the sheer volume, complexity and potential severity of an attack. That said, not too far behind as the second greatest concern to businesses moving forward is financial threat,” he said.

“Armed with plenty of tools, such as compromised IoT devices, it’s likely that we’ll see hackers make use of ransomware and DDoS attacks to cause major distractions. At the same time, we’ll likely see them put a focus on stealing large amounts of financial data, which may include traditional currencies, or the increasingly popular cryptocurrencies - such as Bitcoin. By developing a more cohesive security strategy, organisations can hone in on their most vulnerable data, processes and models, protecting their critical information in the short and long term.”

Participants also noted that - due to the quickly evolving cyber-threat landscape - increasing their ability to respond to DDoS, ransomware and targeted hacking was a main priority, with 9 out of 10 (90%) agreeing that a WAF (Web App Firewall) was an essential component of their company’s security infrastructure, a figure that increased the survey average by a significant margin.

(Source: Neustar International Security Council)

Agave Partners is a cross-border investment bank specializing in the access to the Chinese market for innovative product companies in such domains as Semiconductors, Telecommunications, Data Centres, Artificial Intelligence, Robotics, Automotive and Avionics.

With offices in San Francisco, Beijing and Chicago, Agave Partners represent US and European companies interested in developing strategic partnerships in China for their commercial development and for restructuring their capital. The company realizes Corporate Financing and M&A transactions.  

Agave’s ability to source the right strategic partners in China is in their unique blend of banking and operational experiences allowing to align corporate strategies and structure transactions beyond the aptitude of traditional investment banks. Founder and Managing Director Robert Troy tells CEO Today more about it.

Could you tell us a bit about Agave Partners’ M&A practice?

Our M&A practice focuses on mid-market US and European innovative companies, to which we provide our expertise in identifying Chinese industrial groups able to acquire companies whose offering fits the domestic needs.

Our unique positioning in this practice comes from the combination of our effective presence in China with an office in Beijing dedicated to developing strategic relationships with large industrial and private equity groups, and our expertise in technologies at the core of capital-incentive domains that align with the strategic roadmap of these groups.

These are critical ingredients to maximize the outcome of a deal that is beneficial to both parties, while efficiently navigating through the multiple hurdles, be they administrative, financial, or cultural.

Can you detail a recent transaction that Agave Partners advised on? What were some of the issues that you were faced with?

Agave Partners Advisors was mandated by Kalray SA to source a strategic partner in China with interest in using Kalray technology in its application domain and interest in investing in the company.

We prospected industrial groups that we know to be innovation hungry in highly competitive segments of the Chinese market, including data centres, avionics and automotive; searching for a company which can get a strong strategic advantage at adopting Kalray technology for serving its clients.

Because Kalray technology is very advanced, we found various industrial groups in China, among the most sophisticated, curious about it and genuinely interested in discovering how this technology can be put into practice in their product lines; how it offers a discriminant competitive advantage in better serving their clients; and questioning how fast the market can adopt.

On the buyer’s side, we were confronted to the challenge of promoting a disruptive technology and navigating the full cycle of technology assessment in situations involving product designs and many other steps driving to the strategic decision. Our blend of technologists and bankers’ expertise happened to be of critical importance.

On the seller side, we enjoyed a high-level cooperation with an agile client, not short of commitments when extensive travels and endless negotiations were required to match interests, assess the risks, commit on future developments and overall demonstrate a willingness to engage in a powerful but controlled relationship. Our key contributions have of course been to assist in structuring a complex deal negotiated by parties which were not even speaking the same language and belonging to extremely different business cultures. Our multicultural team made of people used to work and deal in Europe, the US and Asia has certainly been the second key factor of success.

What do you think the next 12-24 months hold for the global M&A market?

Antagonist forces are shaping the global technology market. We see growing altogether (i) a renewed interest of corporations for technology innovations, (ii) a levelling of industrial capacities between continents, (iii) a global awareness of not-to-miss massive game-changer disruptions on their reach to maturity in a variety of application domains including but not limited to automotive, robotics, avionics or healthcare, (iv) the adoption by entrepreneurs and CEOs of worldwide reach as a new normal.  We also see necessary geopolitics considerations creating a growing level of uncertainties with high potential for delaying the trend toward a global reach.

This push-pull situation makes it extremely difficult to predict what the future might hold, but in the short term, we don’t see any possible inflexion of the growing M&A trend in the technology sector for a variety of reasons.

What are some of the current projects that Agave Partners is working on? What lies on the horizon for the firm in 2018?

Agave Partners is working for entrepreneurs and CEOs having a worldwide development strategy. As long as 2018 is concerned, we are primarily working at increasing our capacities to respond to a fast-growing deal flow of high quality companies which see China as their next frontier.

We also have the ambition to become an investor in our most promising clients. For this purpose, we recently signed an agreement with China Electronic Corporation Corporate Venture and their HDSC branch to launch a multi-corporate fund involving European and American electronic corporations as well. Agave Partners Funds is a work in progress with expectation to be launched in the spring of 2018.

Contact details:

Address: 4 Embarcadero Center, Suite 4000

San Francisco, CA 94111

Email: info@agaveph.com

Website: www.agaveph.com

Your experience encompasses assisting companies with growing their businesses – what attracted you to this area of specialism? How rewarding is this?  

With China’s economic development and growth over the last 20 years, more and more foreign companies have been expanding their businesses into China, either through direct investment or through increasing numbers of cross-border transactions. However, doing business in China has distinctive challenges that must be considered, not only because of the potential language barriers, but also because of various business-related regulations and tax requirements that are unique to the country.

Our consultants at Nexia TS (Shanghai) Ltd provide business and tax advisory services to global clients investing in and/or doing business in China. Our service offerings range from planning, structuring and the setting up of foreign-invested businesses, as well as a focus on tax consulting and advisory for all aspects of Chinese taxation. Chinese company and employment law advisory services are also offered. We are able to provide compliance work that caters to assurance and other statutory needs.

Since we established our practice in China in 2001, we have assisted many international companies with their inbound investments into China, setting up direct presence and fulfilling the domestic regulations. Overall, we find that our experience and expertise with the Chinese regulations and business environment have also benefitted our clients.

How should foreign companies structure their business operations to be as tax efficient as possible when considering expansion into China?

In our experience, we have found that the simplest structures are often the best. It is potentially useful for foreign parent companies to own their Chinese subsidiaries through offshore holding companies in low tax jurisdictions that also had favorable tax treaties in place with China. In many cases, multinational groups use layers of holding companies in their structures. Related party transactions between sister companies and the ultimate parent company were essentially designed to extract profits out of Chinese operations without being taxed. Things have changed since 2008 though, and China has implemented many new regulations intended to ensure that the country receives its fair share of taxes. Where a foreign company sets up and registers a subsidiary in China, it is now usually most tax efficient when the subsidiary autonomously performs its business functions. The more control the China subsidiary has over its operations, the better - especially with respect to participation in the VAT system. Furthermore, more autonomy from the parent company generally results in fewer issues with respect to expense deductibility for corporate income taxes. It is true that profits dividends paid to the subsidiary shareholders are taxed at 10%, or less in some cases, but there is tax savings over attempting to extract profits through royalties or cross-border services that are subject to both withholding tax and VAT. Foreign companies operating in China nowadays must take these issues under consideration.

For foreign companies operating in China without setting up a registered entity, there are also tax-related considerations. It is important to properly structure these transactions. For those that simply sell goods into China, the buyer of the goods handles all of the China-related issues. However, for those that sell services, or a combination of goods and services, into China, it is crucial to minimize the risks associated with being recognized as permanent establishment for corporate income tax purposes, and also to ensure that tax treaty benefits are applied to and recognized by the respective tax authorities. Likewise, VAT now applies to all cross-border service transactions, so proper structuring of the service agreements is essential.

What potential pitfalls face foreign companies who wish to set up a Chinese operation - in terms of staying compliant with regulation whilst wishing to operate under a tax efficient structure? What are the potential consequences of non-compliance?

Many foreign investors assume that setting up an entity in China that relies heavily on related party transactions may be very simple when using special purpose entities. For example, a US company might set up a holding company in Hong Kong, to take advantage of lower withholding tax rates on royalties obtained by selling IP usage rights to its China subsidiary. However, China has closed many loopholes with tax officials scrutinising royalty and other similar agreements. If certain criterias are not met, the royalty payments may not be deductible for the China subsidiary.

Another area often overlooked is how China’s tax rules have changed with respect to the indirect equity transfer of Chinese entities by offshore parties. Considerable paperwork must now be filed in China during such transactions, even if no tax will be assessed on the transfer. Penalties can be quite severe if the offshore transferer and transferee do not comply with the documentation filing requirements.

Since the introduction of the Corporate Income Tax Law in 2008, China’s State Administration of Taxation has implemented many new General Tax Anti-Avoidance Rules that allow the country to pursue foreign companies doing business in China and purposefully setting up the businesses or transactions to avoid Chinese taxation. With the advent of BEPS and increasing global cooperation between countries, it has become much easier for China to pursue such cases.

What tax incentives are in place for foreign companies who may want to establish business operations in China?

Companies within certain specific industries can enjoy corporate income tax breaks, and these industries are normally associated with high-tech manufacturing and R&D. In addition, Chinese local municipal governments attempt to attract foreign investments by offering tax exemption or tax rebates on the portions of VAT or corporate income taxes to which they are entitled. There are also incentives for companies investung in energy-saving and environmental protection facilities, which they can deduct a certain amount of their investments for corporate income tax purposes.

How can multinational companies move finances in an efficient way between their international offices?

Foreign companies with regional headquarters in China’s free trade zones have a few options for moving funds between China and other countries. However, China generally has strict foreign exchange rules in place that limit the movement of funds via profit dividends, loans, or other genuine transactions between the parties. Capital usually cannot be moved out of the country without closing and liquidating the business in China. Companies should plan exit strategies at the time of business setup. However, regulations are always subject to change, so such strategies should be analyzed continuously and updated as needed.

What are your thoughts on China’s One Belt One Road initiative? What’s been the impact of the concept on commodity demand thus far?

Unveiled in October 2013, the One Belt One Road initiative is a development framework aimed at enhancing trade and investment connections between Central and Eastern European countries and Asian countries. It not only plays a role as an important economic link between countries, that also helps to relieve some of the issues that were caused by China’s economic development during recent years, such as overcapacity, falling demand for commodities like steel, investment bubbles, lower rates of return on investment and so forth. The key to success of this initiative also depends on joint participation from other countries to bring in high technology to increase the rate of return on investments, instead of just building roads and bridges and ports, which are the key strengths of China in leading this initiative. The collaborative stance that China places on this initiative is very helpful. For example, it acts like entrepreneurs who would like to set up business with existing infrastructures and available financing.

According to the futures prices on steel and copper traded on the Shanghai Futures Exchange, the dominant Futures prices on steel and copper have been rising since 2016, which means that demand for domestic commodities has been gradually recovering. With more deals and projects announced in the future, we foresee that the demand for domestic commodities will continue to rise further.

What do you think the future impact of the initiative will be?

This initiative in the long run will benefit the global economy as a whole, and help rebuild economic interactions between countries that were in existence before the 2008 economic crisis. It not only increases the routes by which transported goods can reach destination countries around Asia and Europe, but also revitalizes the economies and unlocks potential demand from the One Belt One Road countries.

Website:  https://nexia.com

By Kurt Rothmann, Senior Partner, Financial Lines Group at JLT Specialty

Companies are often not doing enough to protect themselves from a fraud epidemic that costs businesses millions a year.

Last year fraudulent employees cost British businesses at least £40m, according to a survey by ActionFraud, with cases steadily rising over the last decade according to fraud prevention body Cifas, and the true extent is thought to be far greater. Crime surveys in England and Wales show incidents of fraud are substantially higher than official reporting. These figures should make businesses alive to the dangers they face.

Dealing with employee fraud

Although employee fraud is relatively common, many companies are reluctant to put measures into place that could prevent it from happening. Whilst the most common form of this fraud is theft of cash, companies simply do not want to believe that their employees are capable of fraud. This means they are reluctant to cover the risk of such an event happening.

The claim that this reluctance could be general organisational weakness seems to be borne out by research conducted by the Association of Certified Fraud Examiners (ACFE) which found that the most prominent organisational weakness was a lack of internal controls, which is then compounded by the fairly modest uptake of crime insurance cover. This is an indictment of business security in general. Essentially, organisations are leaving themselves exposed and vulnerable to losses that go straight to the bottom line. With the ever-changing nature of fraud risk, the level of exposure can be substantial.

Fraud, fraud and more fraud

Another threat that organisations face is a growth in third party fraud. Solicitors are seeing a particular surge in what is called social engineering fraud. Social engineering is a broad term that refers to the scams used by criminals to trick, deceive and manipulate their victims into giving out confidential information and funds.

A good example is ‘Friday afternoon fraud’. With many property transactions being completed on Fridays, the fraudster will either phone up or email the solicitors’ offices pretending to be a party involved in a transaction, and persuade the employee to send funds to a different account. Weak internal controls means these can be overlooked in the Friday afternoon rush, leading to a loss. QBE found 150 successful cases of this type of fraud amongst UK law firms in the 18 months before the first quarter of 2016, costing £85 million, with ten times as many failed attempts.

Avoiding this can be as simple as seeking independent verification before changes are authorised. No matter how much the purported vendor or supplier might be trying to stress that it is urgent and needs to be changed immediately, performing these checks is essential.

There is also the increasingly popular ‘Fake President’ scenario, where a fraudster will contact the senior finance officer pretending to be the CEO, and request an immediate transfer of funds under the pretence of a secret urgent deal. In a scam that cost both the chief executive and the chief financial officer their jobs, Austrian aerospace manufacturer FACC lost €50 million in 2016.

However, even though checks and levels of sign off for payments are important in these situations, they are not sufficient on their own. When a CFO is targeted they will pressure those underneath them to authorise urgent payments. Verifying this initial contact to confirm the identity of the person requesting payment is vital. This can be as simple as insisting on calling the person back on a number not supplied in the call. This may sometimes be embarrassing, but it is a relatively straightforward approach that may prevent a career ending mistake.

There is also the traditional threat of first party fraud, which can include employees charging their company for fake invoices or ghost employees, diverting payments from legitimate invoices into another account, or workers taking bribes from suppliers to allow them to overcharge or award contracts.

Secondary Exposure

The risk of these occurring can increasingly be prevented or discovered internally through proper use of audit functions or IT systems related to payments.

If a company suffers a major social engineering or fraud loss that isn’t properly protected, concerns may be raised about the directors’ management of the company and around the internal controls and procedures and broader risks management strategies. Shareholders and other affected parties can hold the directors accountable for not having fulfilled their duties in this regard.  This secondary exposure is something boards and directors should take seriously, as ultimately, they could be held liable and exposed to the costs of defending against litigation or dealing with an investigation.

With these risks uncovered, risk management and constant vigilance must be at the forefront of every director’s thoughts. They must ensure they have robust controls and systems in place to make sure they are able to monitor and react to their risk in real time. Good due diligence is also important. With technology becoming ever more sophisticated, the way fraud is conducted does too. The expectations placed upon directors and the ever-increasing regulatory burden means there is no excuse to not be prepared for any event.

One final piece of this risk management should be to consider crime insurance protection as a last line of defence if the fraudster manages to bypass all other preventative measures.

Website: http://www.jltspecialty.com/

By their nature, M&A transactions are challenging at the best of times - never mind during periods of political and economic uncertainty. History is littered with unsuccessful deal-making that more often than not leads to poor staff retention rates, buy side write-downs, divestment, dissolution and/or bankruptcy.

Typically, failed transactions are caused by a culmination of different issues. So what are some of the major industry pitfalls that merging parties ought to be aware of?

Lack of strategy

Believe it or not, many investors do not focus on the long term strategy associated with a merger or acquisition. The logic behind a deal is all too often side-lined for short term goals and perceptions driven by politics, ego and self-interest. In 2005 EBay’s acquisition of Skype, which left many dumbfounded, was valued at $2.6 billion. The lack of rationale behind the deal was a topic of much criticism. Four years and following an £860 million write-down, the e-commerce corporation announced the sale of over half of the telecommunications company. Although it is clear that in order to gain better insight long-term, reforms that substitute quarterly updates for more extensive financial reporting periods need to be implemented, the issue of an effective incentives system remains unsolved.

Cultural incompatibility

Disregarded for the most part, culture actually plays a big role in the success or failure of a merger. According to the Society for Human Resource Management, clashes account for more than 30% of overall failures. A particularly high profile case gone awry was AOL’s merger with Time Warner in 2001 referred to subsequently by Jeff Bewkes as ‘the biggest mistake in corporate history’.

The deal which equated to a $99 billion loss and led to the eventual divorce of the conglomerate in 2009, caused numerous job losses, retirement plans, workplace disruptions and probes by the SEC and Justice Department over the eight year period.

Although there are a number of variables outside of a buyers’ control, a focus on realistic and applicable core values, an effective internal communications strategy and an engaged workforce can help safeguard against the worst outcomes.

Poor due diligence

Being unprepared for the due diligence phase is among the most common reasons for botched deals. M&A transactions rarely fail due to lack of knowledge however. Over half of them go pear-shaped because those involved in the deal are reluctant to confront issues head on. All areas of potential liability therefore need to be acknowledged and investigated.

Buyers are often guilty of proceeding with a deal despite the challenges they face because of the amount of time and money involved. Being prepared to call it a day if risk outweighs benefit is critical. Allocating inadequate resources during the review stage cost Bank of America $50 billion in legal fees following the acquisition of Countrywide Financial in 2008. The former, which also suffered significant reputational damage, paid the ultimate price for mistakes made by the mortgage lender.

Going about due diligence strategically in both a logical and rational way is paramount to ensure success, as is transparency. Although it may seem counterintuitive, in order to increase trust and iron out potential issues from the get go, sellers should guide buyers to areas of potential difficulty rather than wait for them to learn of the issue themselves much later on in the process, which could result in a breakdown of trust.

Not using the right tool for the job

These days the majority of transaction due diligence is carried out online and handled by virtual data rooms (VDRs) facilitating, among other things, the digitisation of documents, the automation of tasks and the streamlining of workflows.

Given the need for highly secure access to confidential documents during the due diligence phase, security should be the priority for everyone implementing a VDR. Two-factor authentication, automated encryption and a detailed rights management system that enables the administrator to grant different permissions is essential.

A VDR should allow for high-speed access to documents, high-speed batch uploads to process large volumes of documents and real time document translation given the increasingly international nature of M&A transactions.

The software should also allow all parties to conduct their due diligence in a structured and transparent manner. A clear and flexible index structure that supports document review workflows, a structured Q&A and a reporting process that creates a clear audit trail should all be sought out and secured.

About Drooms:

Drooms, Europe’s leading virtual data room provider, works with 25,000 companies around the world including leading consultancy firms, law firms, global real estate companies and corporations such as Morgan Stanley, JLL, JP Morgan, CBRE, and UBS. Over 10,000 complex transactions amounting to a total of over EUR 300 billion have been handled by the software specialist.

Written by Steve Powell, Director of Sales – EMEA at PCMS

No matter which (or how many) channels consumers shop through, a smooth end-to-end experience is now their expectation. They care little for how difficult retailers find it to serve them consistently and effectively; they simply want what they want, whenever and wherever they want it.

The good news for consumers is that most retailers now have a firm grasp on delivering to this expectation. However, for even the more mature omnichannel organisations, there is often a sticking point: payments.

When it comes to customer service, payments are the ‘last mile’ in conversion, and abandonment rates due to poor performance are still higher than most retailers would like. Online, for example, figures compiled by the Baymard Institute show that 74% of ecommerce carts were abandoned in 2016. This is even more concerning when you consider that the average abandonment rate was 69% five years previous.

Payment pain points are not solely an issue for the web, either. Research conducted by telecoms operator EE revealed that 73% of shoppers will abandon their purchases in stores if forced to queue for more than five minutes. A slow or unreliable payment experience can be a major contributor to waiting times.

Prioritising payments

 Many retailers are investing heavily in the checkout experience both on and offline to enhance the customer experience, and it’s vital that payments are prioritised as part of this initiative.

For example, online, retailers that are choosing to work with a payment gateway provider need to ensure that it integrates seamlessly with the rest of their site. Suddenly redirecting shoppers to an inconsistently branded – or even unbranded – payment page can be jarring, and make them start to question its authenticity, which in turn may cause basket abandonment.

Equally, the ecommerce payment experience needs to work around local customer needs. This means creating a secure experience without making authentication overly burdensome, while also giving shoppers the option to pay in their local currency, through their preferred payment method.

In the store, meanwhile, many organisations are rolling out mobile Point of Sale (mPOS) technology to provide a richer, more personalised customer service in their stores. However, many are focussed on getting shoppers to convert – access to stock availability, product information, product demonstrations and reviews – than what happens when the customer is ready to buy.

The most effective in-store technology solutions embrace the complete customer journey right through to the checkout, and that means integrating payments into device capabilities.

By making payments a key feature, store associates are empowered to enhance customer service in other ways. One example of this is queue busting during peak periods, as mPOS liberates front-line staff from fixed checkouts and allows them to take payments anywhere in the store.

Checking in – not out – with customers

 As I’ve already touched on, mobile store technologies enrich customer experiences by drawing on digital information. Many retailers are already looking at how operational data and knowledge of shoppers’ online behaviours can enhance the shopping experience, but some solutions have the power to take this even further.

For instance, retailers such as Marks & Spencer are exploring ‘mixed basket’ capabilities at the store checkout. When a shopper comes to pay or pick-up their click & collect order, they can also be given the option to pay for items that have been placed in their online shopping basket when they’ve been browsing the web.

This is an effective example of how activities in multiple channels can come together at the point of transaction. A well-integrated payment capability can enable the customer to kill two birds with one stone, and the retailer to increase the value of that customer interaction with relative ease.

Making shopping and transactions indivisible

Undoubtedly, improvements have been made over the past few years in the omnichannel capabilities retailer can offer customers. The next aspect to smooth out the payment experience.

As I said at the start of this article, payments are the last mile in customer service, and therefore one of the biggest influences on customers’ lasting impressions of a retailer. Therefore, the quality of the payment experience is not just about winning or losing a sale; it can have a powerful effect on how shoppers perceive a retail brand.

With this in mind, when it comes to customer retention and loyalty, the most successful retailers will be those who prioritise making shopping and transactions indivisible. Wherever they are, whatever they are buying, the customer should barely notice they are checking out.

Written by Nick Pointon, Head of M&A at SQS

In June 2015, US security regulators investigated a group of hackers, known as FIN4. The group were suspected of breaking into corporate email accounts of 100 listed companies and stealing information in relation to mergers^[1] for financial gain. Hackers are always on the lookout for opportunities to exploit vulnerable IT systems during mergers or acquisitions.

Starwood Group, an American hotel and leisure company, was the victim of a data breach in 2015 caused by malware infected point-of-sale terminals, shortly after the acquisition by Marriott Corporation had been announced. As a result of the breach, hackers gained access to customer names, payment card numbers, security codes, and expiration dates. It was later questioned whether IT systems were appropriately assessed before the acquisition was made public knowledge.

There is so much going on in the process of an acquisition or a business merger that IT systems are often neglected. This creates vulnerabilities, potentially exposing sensitive information which cyber criminals can exploit. IT teams must focus their attention on ensuring the security of existing systems before a company even considers undergoing an acquisition or merger.

Pre-acquisition technical due diligence

Technical due diligence refers to the period during which IT systems are inspected, reviewed and assessed for areas of vulnerability that need to be addressed. Organisations looking to be acquired or merge, should begin a process of technical due diligence internally before seeking interested parties. By carrying out such an internal technical due diligence, the company being acquired can be satisfied its systems are robust, secure and fit for purpose, and the acquirer’s due diligence will not expose any issues that may jeopardise the deal.

In addition to the security vulnerabilities, many organisations carry open-source licensing risks.  Open-source modules or snippets of code are commonly incorporated by developers into software to aid rapid development.  Although this open-source code is freely downloadable, it is normally subject to an open-source licence, and this licence places restrictions and obligations on what can be done with this code. Companies often have no idea what open-source code is used in their systems and any breach of licensing restrictions can be costly to fix and endanger the deal. So the internal technical due diligence should include an assessment of open-source licensing risk, allowing the company to resolve any problems in advance.

By conducting thorough technical due diligence before embarking on the process of an acquisition, organisations will have a greater appeal to interested parties and can ensure the deal will proceed smoothly. Those looking to acquire will have a clearer understanding of the technical assets for sale, with the added reassurance there won’t be any unpleasant surprises.

Yahoo recently felt the ramifications of neglecting IT systems in anticipation of the Verizon acquisition, after it was revealed earlier this year that 500 million customer email accounts were hacked. This now has the potential to affect the final deal - Verizon have issued a statement stating that the company is looking to alter the terms of the deal, as it felt Yahoo wasn’t completely transparent about the breach. This is a prime example of technical due diligence that hasn’t been thoroughly conducted and proves issues unearthed during the closing stages of an acquisition have the potential to affect the final sale price.

Pre-implementation hurdles

Once an acquisition has been agreed in principle, senior stakeholders must then address which systems are being continued and which should be decommissioned. A skilled project manager must be chosen to manage and monitor the implementation of the systems; ensuring decisions impacting the seamless integration of the acquisition are made on time.

Companies often underestimate the amount of work that goes into managing the process of an acquisition. This can result in the appointment of a project manager without the necessary skills needed to efficiently run the entire process. All too often it is assumed acquisitions only affect the financial and legal teams, when in reality it affects every department. An individual is needed with the skills to communicate across all departments and at all levels.

Post-acquisition finishing touches

The sale is agreed and personnel have merged, but it doesn’t stop there. Post-acquisition integration is a separate project in its own right and requires close engagement from senior stakeholders. Merging IT systems across companies can affect the smooth running of daily operations, exposing flaws in acquired systems likely to cause system downtime. By bringing third-party experts on-board, companies facing both pre- and post-acquisition challenges can be kept safe in the knowledge that IT systems are maintained and sensitive data is kept safe.

No matter how big or small the company or the number of employees, acquisitions are always a major upheaval. In order to allow the organisation to continue to operate efficiently both during and after the deal, it is vital the entire integration is properly planned and effectively executed.  This planning starts during due diligence by carrying out a thorough assessment of the technology and systems.  And the process continues with the execution of the integration project, which requires a skilled project manager supported by engaged stakeholders and effective communication at all levels in the new organisation.

Finance Monthly Magazine is pleased to announce that its 2016 M&A Awards edition has now been published.

Every year Finance Monthly M&A Awards recognise and celebrate the achievements of dealmakers, management teams, financiers and professional advisers who, over the 12 months, have demonstrated their deal making excellence when working on some of the most important deal across the globe.

Finance Monthly’s research department has spent the past several months carefully researching and identifying some of the most respected individuals and firms from all over the world. The process, compromising of an online vote and personal nominations, culminated in Finance Monthly’s research team collating the totals to compile a definitive list of industry leaders. All of our M&A Awards winners show an insight into the market that proves why the demand for expert dealmakers continues to increase year upon year.

Editor-in-chief, Mark Palmer commented: “The M&A process is a tried and tested formula for the growth and prosperity of a company, and yet, it is a very complex field to navigate. We are extremely proud that all of the individuals and organisations that are listed within Finance Monthly’s 2016 M&A Awards have excelled in helping companies overcome the complications that can arise during these transactions and have contributed to achieving excellent results.”

Finance Monthly would like to thank all contributors and participants in the 2016 M&A Awards. Congratulations to our winners and finalists.

To view the awards publication please visit: http://mandaawards.finance-monthly.com/