Fig 1: Example of a dashboard developed by the authors with some relevant maintenance key performance indicators (KPIs).
These variables must be quantified, qualified, and compared with the average service levels of the industry in which the seller is operating, with the competitors, and also with the objectives established in the M&A project, in order to have information and control once the transaction has been carried out.
2. Technology can reduce information asymmetry.
How can technology reduce information asymmetry? This can be achieved through correct data collection by the seller and its subsequent analysis and processing using big data tools. Information technology has gained greater importance in M&A due to the globalization of digitization, and it creates value in the processes of a company. It supports the risk-free evaluation of the above-mentioned variables, and therefore can analyze the appropriate acquisition price (Stein, Zureck, & Jäger 2018).
Nowadays, it is possible to store files and large volumes of data through remote access to software. This is called “cloud computing” and has become an essential tool for the development and growth of SMEs (Zabalza, Rio-Belver, Cilleruela, Gavechana, & Gavilanes 2012). This tool makes it possible to store all the data for processing and treatment. As operations become more complex, technology and the people who provide and support IT are critical drivers for resolving ambiguities. ICTs are essential in the previous phase of integration (Larsen 2005).
ICTs enable communication through the IoT. In the US auto insurance market, for example, some insurance companies use technology to track driver behavior in order to apply the correct insurance premium. For example, a driver who takes risks will pay more than a conservative driver. The aim is therefore to monitor the driver’s habits and behavior through a direct recording of information from the vehicle’s IoT device. This monitoring through technology reduces information asymmetry and adverse selection (Chen & Jiang 2019)
ANALYSIS: ECONOMETRIC MODEL
To support this theory regarding information asymmetry, an economic analysis was carried out regarding the impact in an M&A process of the acquisition of elevators that are not in good working condition but were not identified as such during the operational DD process. Generally, around 5% of the portfolio generates more than 50% of breakdowns. The key is to identify all those elevators that are damaging the P&L.
For this, we propose an econometric model that considers operational variables and how they affect each other, allowing us to make future predictions and estimates of the profitability and the return on investment. The proposed model tries to quantify the cost of acquiring an elevator in unsuitable working condition, and as a consequence, depending on the volume of these elevators acquired, how this can cause a non-return on investment.
Preventive maintenance is defined as maintenance carried out periodically according to national regulations and the execution program of each elevator maintenance company. Corrective maintenance is defined as maintenance that rectifies a fault and represents a cost for the company
Before we can apply the econometric model, we first need to define the average price values ​​of the local and regional companies that can be acquired, both for preventive maintenance and annual repairs. The econometric model proposed can be applied to any market in any region, but we have taken the average values of the Spanish market as an example.
In the Spanish elevator market, we have to differentiate between two segments: the residential segment, composed of elevators installed in residential buildings, whose average type of installation is 450 kg (6 people), 1 m/s of speed, and 8 stops; and the commercial segment, which is composed of both elevators and escalators in buildings such as hotels, shopping centers, offices, airports, and train or metro stations, and whose diversity of characteristics makes it impossible to determine an average type of elevators and escalators installed. For both segments there is a law in Spain that regulates periodic technical maintenance and rescue time.
Therefore, and given the evidence that 99% of the portfolio of local and regional companies corresponds to the residential segment, we decided to carry out the econometric model study in the Spanish residential market. The premises we used are shown in Figure 2: