Enhanced analytics among new indispensables of corporate finance

Broader trends in corporate finance such as globalisation, sustainability and digitalisation, as well as the shifting regulatory environment, will all have a sustained impact on how organisations do business.

Experts say the future of corporate finance will involve a significant push toward digitalisation. Businesses have always sought out more efficient ways to operate and digital tools and technologies are now being widely adopted to help streamline processes, bring down costs and inform decision making.

Fintech is undergoing an explosion as corporations seek out more efficient financing solutions, and is increasingly being integrated into everyday business dealings. Meanwhile, advances in technology will enable finance departments to provide real-time data and reporting, allowing stakeholders to make quicker decisions based on up-to-date information.

And as the volume of financial data continues to grow, corporate finance departments are increasingly relying on advanced analytics, machine learning and artificial intelligence to make better business decisions.

Sustainability: A whole new set of reporting with potential to be transformative

---

Tools and applications, in common use elsewhere in life, are still not standard in healthcare settings

---

Futureproofing the health system requires a new prescription

---

Twenty years a-growing – Ireland’s most important health summit goes from strength to strength

---

“Enhanced data and analytics capabilities have become indispensable and demanded as a non-negotiable during the diligence process to facilitate the change in focus by acquisitive businesses,” says George Byron, partner in transaction services with Deloitte. “Our experience is investors and/or acquirers across all sectors are requesting that commercial data is analysed as part of the financial-due-diligence work stream and wish to review the data with multiple lenses.”

Corporate finance is not immune to the drive towards sustainability, and ESG (environmental, social and governance) investing is becoming more mainstream as investors seek out companies that are taking their social and environmental responsibilities seriously.

It emerged back in June that Irish Life Investment Managers (ILIM), the largest asset manager in the State, last year voted against almost 19 per cent of resolutions put forward by management of the 5,369 companies in which it invested internationally. ILIM currently has 49 per cent of its assets in so-called ESG funds, up from 17.6 per cent at the end of 2019. The trend is being expedited by a growing body of legislation in this area.

Merger and acquisition (M&A) activity has also been affected by volatility in the market, with rising interest rates seeing a change in the number of mergers and acquisitions, and the reasons for them. Law firm William Fry recently noted a sharp fall in the value of M&A activity in Ireland in the first half of 2023, with the value of deals 58 per cent lower than in the same period last year, at €5.2 billion. A spokesman for the firm said the Irish slump was in line with global trends, as rising interest rates, high inflation and fears of a recession had affected confidence and made acquisitions more expensive.

According to Conor Cullen, partner in transaction services with Deloitte, in recent years acquisitive businesses, both corporate and private-equity-backed, have primarily concentrated on growth, taking advantage of the low-interest-rate environment. This has evolved as interest rates have risen.

“However, the current landscape has prompted a shift in focus post-deal – with a consideration pre-deal – to prioritising value creation on completed transactions and synergy realisation,” says Cullen. “Additionally, acquisition targets are expected to evidence their equity value story and demonstrate and articulate organic growth drivers.”

“In particular, we have seen an increased focus on working-capital optimisation and more in-depth financial reporting,” adds Byron. “In summary, acquisitive businesses will be challenged to balance organic value-creation initiatives and inorganic growth strategies.”

Byron and Cullen agree that the current environment has created challenges for acquisitive businesses, including valuation expectation gaps, heightened risk in the delivery of budgets and forecasts, and the need for a strong balance sheet “on day one”. They say adopting different transaction structures can help with such challenges.

“These include the use of equity rollovers and shared-based compensation by those who haven’t previously considered these structures,” Cullen says. “And while already standard across some sectors, increased use of earn-outs or alternative deferral mechanisms to underpin the delivery of budgets and forecasts will be seen.”

Byron adds that the increased use of minority equity stakes, which strengthen balance sheets and “allow dry powder for bolt-on acquisitions”, is another strategy.

“We also anticipate private equity buyers funding deals on an all-equity basis and refinancing later,” he says.

In recent months, Cullen says, an increase in minority investments and use of earn-out structures has been observed.

“However this may be reflective of the reduction in private-equity platform deals,” he adds.