Boosting technology spends for new-age deal sourcing by investment banks and advisory firms

Published on September 11, 2024 by Arnab Banerjee

Technological advancements and innovations have altered the way the financial sector operates. Investment banks and advisory firms too are catching up, formulating digital transformation strategies, in order to address and keep pace with evolving market dynamics. They are increasingly using digital tools and platforms to evaluate global markets, review their portfolios, explore new opportunities and new economies and tap cross-border deal opportunities.

Banking and financial services as a sector has stayed ahead of the curve in terms of adopting emerging technologies and innovation. Starting with centralising core banking operations, data sourcing and processing to online banking and the advent of mobile payments, the sector continues to embrace innovation.

Investment banks have also been part of this story of rapid technology growth. Tasks that were manual a decade ago, such as data sourcing, have now been automated. Another example is spreading of trading comparables: analysts used to perform this manually on spreadsheets, sourcing data from company filings. It has now been transitioned smoothly to auto-fetching the required adjusted data using database plugins from players such as Capital IQ and I Metrix. Investment banking and advisory firms continue to explore new avenues of technology adoption aimed at multiplying their productivity and efficiencies.

Latest advancements and adoption of technology in investment banking

Advanced technologies can assist with deal origination, company searches, due diligence and even change management. Technologies such as artificial intelligence (AI) are being used increasingly by investment banks for their research requirements. For example, dozens of filings, relevant reports and other documents can be pulled for analysis in no time. Technology solutions have also been developed for direct listings, saving companies millions of dollars in the IPO process. On the trading side of investment banking, the effects of adopting blockchain are felt strongly, with reconciliation processes and regulatory reporting requirements being addressed rapidly, eliminating costs and significant amounts of manual effort. Virtual deal or data rooms are empowering deal makers with enhanced compliance and security, better productivity and lower costs of deal making. Higher-complexity tasks such as projections, valuations, quantitative analysis and simulations are also being explored with the assistance of emerging and advanced technologies.

Streamlining the deal-origination process and improving deal-flow management

The deal-origination process refers to how deal opportunities are sourced. It is the first step in generating deals. The process involves identifying, sourcing and evaluating potential deals. Investment banks and advisory firms may either have an in-house team dedicated to deal origination and buy-side/sell-side operations or outsource this process to a deal-origination company that has a team of dedicated analysts assisted by specific software. Until recently, this process was driven largely by networking with contacts and extensive market research.

SaaS products designed for investment banking are being introduced in the market. These products offer a deal-sourcing platform that uses advanced technology tools to source and validate information relating to potential opportunities. The platform then automates and sends its findings to a bank’s customer relationship management (CRM) team to expedite the dealmaking process. This is a new avenue, and some players are integrating emerging technologies such as AI into their platforms while most offer traditional research platforms for sourcing relevant data and subsequently assist with searching for buyers or targets.

Popular traditional deal-sourcing platforms

Deal-sourcing platforms harnessing the power of emerging technologies

Who are the customers of these platforms?

These new-age platforms are being adopted and explored by investment banks, private equity firms and venture capital firms such as Permira, Raymond James, TA Associates, Blackstone, Deutsche Bank, Carlyle Group and KKR. Some of these firms are in early stages of exploring these platforms to harness the power of innovation and deal origination backed by the latest technology, although they remain cautious in their approach. 

Tech spending by investment banks has increased

Globally, corporate and investment banks have increased their tech spending and plan to increase this further, according to surveys by multiple research firms such as Gartner and IDC.

Global enterprise IT spending in the banking market is forecast to increase by 8.7% in 2024 to USD735.6bn in constant USD. This is expected to grow at a CAGR of 9.3% to an estimated USD1tn by 2028

Source: Gartner

Cautious adoption?

As with all new technology, it can be both tempting and misleading to allow these tools to take on more than they should. The implementation of technology in banking comes with a major disadvantage in that most of the platforms or tools have no potential to incorporate human reasoning. Thus, while the technology can process data faster than humans can, it should not be allowed to take action or make decisions without human intervention. Despite how promisingly advanced emerging technologies and innovation in banking are depicted, they are still a long way away from replacing humans. While technology and innovation can handle the basic parts of the investment banking task, humans would need to define the rules and strategies to be followed. In its Top of Mind publication, Goldman Sachs questions the promise of emerging technologies such as generative AI and their benefits due to the cost they entail and is apprehensive about the safety and compliance in adopting these tools.

This warrants a combination of technology and human resources for better output. Instead of being fully dependent on AI, a team of software programmers who scope out a defined output based on the defined inputs would be a better solution.

Conclusion

Combining advanced technology with traditional process has the potential to take the investment banking and finance sector forward, starting from the initial deal sourcing to streamlining the entire dealmaking process. Industry players are gradually adopting these futuristic platforms but are at the same time cautious about aspects such as validity, safety and compliance. It is imperative that deal-origination and deal-sourcing platforms based on new technology be relied on only under human supervision and be accompanied by human reasoning, checks and validations. A team of software engineers, combined with investment banking analysts, would provide better output.

How Acuity Knowledge Partners can help

We are a trusted global offshoring partner to the financial services sector. We take great pride in being the world’s leading provider of bespoke research, analytics and technology solutions to the financial services sector for more than two decades. Our 6,000+ full-time employees currently assist more than 600 clients globally. Our Data and Technology Solutions team offers defined automation processes for investment banks, advisories and private equity firms. The team’s expertise ranges from digital engineering services to data engineering, data science and AI and enterprise platform services. The team also plays an instrumental role in guiding and supporting our clients towards effective implementation of emerging technologies in their financial operations.

Sources:

• https://www.gartner.com/en/newsroom/press-releases/2023-06-21-gartner-forecasts-worldwide-banking

• https://dealroom.net/blog/how-technology-is-changing-investment-banking

• https://www.sourcescrub.com/post/2024-trends-investment-banking

• https://www.goldmansachs.com/intelligence/pages/gen-ai-too-much-spend-too-little-benefit.html

• https://www.goldmansachs.com/intelligence/pages/a-new-generation-of-ai-tools-and-models-is-emerging.html

• https://www.greenwich.com/press-release/corporate-and-investment-banks-devote-20-spending-technology

• What will banks' tech priorities be in 2024? | American Banker

• Forecast: Enterprise IT Spending for the Banking and Investment Update (gartner.com)

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