Unlocking the Future of Dealmaking: Trends, Challenges, and the Impact of AI in a Recovering European Market

As the largest virtual data room provider in the Benelux, we see trends in the M&A industry. In recent months, we have observed signs of recovery in the European market, accompanied by shifts in deal preparation strategies and the growing influence of artificial intelligence (AI) solutions, such as ChatGPT. This article aims to explore the progress of VDR volume, the significance of deal preparation, challenges in mergers and acquisitions (M&A), emerging trends, and the potential impact of AI in the legal sector. Our goal is to keep you, as an advisor, informed about the changing landscape of dealmaking and provide you with knowledge that can drive successful transactions in this dynamic market.

The deal volume within the first half of 2023

Progress of VDR Volume and Importance of Deal Preparation
Throughout the first half of 2023 we experienced a noticable increase in the volume of new Virtual Data Rooms (VDRs) on our platform. In comparison with previous years, where we experienced significant growth, we now notice that overall growth is stagnating. Users have been showing a change in behaviour, with a greater emphasis on deal preparation. Workspaces, dedicated to deal preparation, are being opened more frequently and utilised for extended periods before transitioning to the data room. This shift highlights the growing recognition of the importance of thorough preparation in deal transactions.

Challenges in M&A and Potential Impacts
As a market leader in the Benelux region, we have observed challenges in the M&A landscape during the first half of 2023. Fewer deals have been successfully closed, and the closing process for data rooms has been prolonged. Additionally, an alarming number of deals have remained unclosed compared to the previous year. These declines can be attributed to several factors: with rising interest rates, inflation, limited funding options, geopolitical tensions such as the war in Eastern Europe, and reduced consumer confidence. These elements collectively contribute to increased risk for investors. In addition, the multiples have experienced a drastic decline over the past 12 months, resulting in a significant disparity between market value and expected value for sellers. Luckily, the Real Estate market is on the rise again after a tough period, which gives us hope for the M&A market as well!

The strong recovery observed in the number of data rooms opened in Europe since May points towards an anticipated increase in both data rooms and transactions.

The deal volume in the second half of 2023

Forecast for Deal Volumes in the Second Half of the Year
Considering the average six-month duration that it takes to close a deal from opening a VDR, it is anticipated that deal volumes will witness an improvement in the second half of the year. The surge in the number of Workspaces opened for deal preparation since the second quarter suggests that deals will face fewer delays. This positive trend is expected to result in a higher number of data rooms being opened compared to the second half year of 2022. Additionally, the strong recovery observed in the number of data rooms opened in Europe since May points towards an anticipated increase in both data rooms and transactions.

Market Insights in Germany, France, and the Nordics
In the first half of 2023, we have actively engaged in the neighbouring countries of Germany, France, and the Nordics, resulting in a 24% YoY increase in the number of data rooms opened. Our presence in these regions has enabled us to closely monitor market dynamics and contribute to the growth of deal activities, which we expect to continue throughout the second half year.

Recent trends in the market

Emerging trends: Real Estate Market Recovery
An interesting trend worth noting is the gradual recovery of the real estate market following the disruptions earlier in the year. The sector is showing signs of getting back on track, indicating a positive outlook for future real estate transactions.

Emerging trends: Valuation Challenges
The M&A market in 2023 is navigating the impact of multiple factors on corporate values. With inflation on the rise and interest rates increasing, the dynamics of valuation multiples are undergoing adjustments. Inflation can affect the cost of goods and services, potentially impacting the profitability and valuation of companies. Additionally, as interest rates rise, the discount rates used in valuation models may be adjusted, influencing the multiples applied. On the other hand, the positive trend of rising consumer confidence can create a favourable environment for M&A activity. However, despite this, companies are experiencing downward pressure on the prices they receive due to heightened risks in the market. Investors are being more cautious and demand higher returns to compensate for the increased uncertainty, resulting in lower multiples being applied to corporate valuations. As a result, market participants must carefully analyse these factors and adapt their strategies to effectively navigate the evolving M&A landscape in 2023.

Emerging trends: The rise of AI
The rise of AI, exemplified by ChatGPT, has sparked interest and speculation within the tech world and SaaS businesses. AI's potential implications and changes are being carefully examined. The combination of a familiar user interface and the power of GPT 4.0 has propelled the growth of ChatGPT, making excellent design and UX essential. From our perspective, any AI implementation on our platform should seamlessly integrate into existing workflows, providing a natural user experience. Empowering users with AI capabilities enhances scalability.

Microsoft Azure, on which our software is built, and Microsoft's significant stake in OpenAI, has positioned ChatGPT as part of the Azure OpenAI Service. Integrating AI within VDRs offers a lot of advantages. Ultimately, this comprehensive suite of AI-powered features could work together harmoniously to revolutionise the dealmaking process, streamlining workflows, and increasing overall efficiency. By automating tasks, optimising data organisation, and providing powerful analytical capabilities, these advancements empower deal participants to make informed decisions, identify risks, and generate insightful due diligence reports.

The integration of AI-driven Q&A capabilities boosts the dealmaking process by facilitating quick access to relevant information. By employing intelligent search algorithms, virtual assistants can suggest previously asked questions or relevant passages within documents, minimising duplication of effort and promoting collaboration among deal participants.

As the world of M&A continues to evolve, embracing these AI-driven advancements not only accelerates deal completion but also positions organisations at the forefront of dealmaking excellence. By leveraging these technologies, companies can gain a competitive edge, foster collaboration, and unlock new opportunities for success in the fast-paced and dynamic landscape of M&A transactions.

Looking towards the future, we envision exciting possibilities for ChatGPT in the legal industry. It has the potential to revolutionise tasks such as drafting standard letters, simple contract drafting, and even contract AI, streamlining legal processes and increasing efficiency.

Emerging trends: Embracing sustainable data storage
The rise of saasification has prompted businesses to reevaluate pricing models and prioritise competitive rates, enhanced user experience (UX), and user interface (UI) features. Meanwhile, the increasing volume of data has necessitated scalable, secure, and cost-effective data storage solutions.

Saasification requires Virtual Dataroom providers to reconsider pricing models, offering competitive rates and introducing new packages to meet evolving customer needs while ensuring profitability. For instance, offering unlimited data based on a (monthly) membership. To meet user expectations, VDRs must prioritise seamless UX and UI, investing in advanced design principles and incorporating user feedback for intuitive interfaces.

As data volumes grow, traditional storage methods become unsustainable. Data room providers must embrace scalable and secure alternatives, such as cloud-based storage solutions, to ensure efficient data management and reduce costs. Staying agile and adaptive to emerging technologies is crucial. Exploring edge computing, blockchain-based storage, and AI-driven data management systems can revolutionise scalability, security, and cost-effectiveness.

Let's conclude

In conclusion, the European market has displayed signs of recovery, accompanied by changes in deal preparation strategies and the growing influence of artificial intelligence (AI) solutions like ChatGPT. The volume of new Virtual Data Rooms (VDRs) has seen a noticeable increase in the first half of 2023, with a shift in user behaviour emphasising the importance of thorough deal preparation. However, challenges in the M&A landscape, such as prolonged closing processes and increased risk for investors, have impacted deal volumes in the first half of the year. Looking ahead, it is anticipated that deal volumes will improve in the second half of the year. The surge in Workspaces opened for deal preparation suggests that deals will face fewer delays, leading to a higher number of data rooms being opened and more transactions taking place. Market insights from Germany, France, and the Nordics indicate a positive growth trend in deal activities in these regions.

Several emerging trends have been observed, including the gradual recovery of the real estate market, which gives a clear prediction for future transactions. Valuation challenges caused by factors such as inflation, interest rate fluctuations, and increased uncertainty have impacted corporate values and led to downward pressure on prices received. However, rising consumer confidence provides a favourable environment for M&A activity.

The rise of AI, exemplified by ChatGPT, has become a significant trend in the tech and SaaS business sectors. AI integration within VDRs offers numerous advantages, revolutionising the dealmaking process by streamlining workflows, automating tasks, and providing powerful analytical capabilities. The AI-driven Q&A capabilities enhance collaboration and decision-making among deal participants. Furthermore, AI's potential extends to the legal industry, where it can optimise tasks like drafting contracts and standard letters, increasing efficiency in legal processes. In addition to AI, the rise of saasification has prompted businesses to reconsider pricing models, prioritise seamless user experience and user interface features, and embrace scalable and secure data storage solutions. Exploring emerging technologies such as edge computing, blockchain-based storage, and AI-driven data management systems can revolutionise scalability, security, and cost-effectiveness in data storage.

By embracing these emerging trends and leveraging AI-driven advancements, organisations can accelerate deal completion, gain a competitive edge, foster collaboration, and unlock new opportunities for success in the evolving landscape of M&A transactions. The future holds exciting possibilities for ChatGPT in the legal industry, where it can streamline processes and increase efficiency. Ultimately, staying agile and adaptive to emerging technologies is crucial for businesses to thrive in the dynamic dealmaking landscape.