Artificial Intelligence in M&A: Opportunities You Should be After

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Vlad Zghurskyi

10.07.2024

5 Min Read

Did you know 85% of users say generative AI meets or exceeds their expectations? Despite the hype, it offers great potential. Discover why you should start using AI. Keep reading!

AI Possibilities for M&A: Overview

Let’s start with some stats to give you a better picture of how the demand is growing. So, AI deal activity surged 392% in Q1 2024 compared to the prior quarter’s total of $7.2 billion. This represents a 168% increase year-over-year compared to Q1 2023. Deal volume also climbed, rising 20% in Q1 2024 compared to the previous quarter and 27% higher than in Q1 2023.

Traditionally, deal sourcing relied on a combination of human intuition, industry knowledge, and relationship networks. AI introduces a powerful new dimension by sifting through vast amounts of data to identify potential targets that might otherwise be overlooked.

Here's how AI excels in deal discovery:

Market Trend Analysis: AI algorithms can analyze market data, news articles, social media sentiment, and regulatory filings to identify emerging trends and predict disruptions within an industry. This allows companies to proactively seek targets poised for future growth within these evolving landscapes.
Financial Modeling and Valuation: AI can process vast amounts of financial data to uncover undervalued companies or those with hidden potential. By analyzing historical performance, industry benchmarks, and economic forecasts, AI can generate more precise valuations, guiding dealmakers towards targets that offer a higher return on investment.
Company Matching and Synergy Identification: AI can analyze a company's strategic objectives and match them against a vast database of potential targets. By identifying companies with complementary strengths, overlapping customer bases, or synergies in research and development, AI can pinpoint targets that hold the greatest potential for value creation.

Yet, at this point, only some single M&A deals include the opportunities presented by AI. According to the Bain&Company M&A report, most companies focus on using generative AI to identify targets or conduct document reviews. Overall, M&A deal processes are low – 16% only, but it is expected to reach 80% by 2027.

Source: https://www.bain.com/insights/topics/m-and-a-report/

What Are the Immediate Benefits for Buy and Sell Sides?

The first thing any company wants to know is how Generative AI can impact sellers and buyers. In short, both parties can significantly save time – by our rough estimations of 50% in comparison to deals done entirely by teams.

When it comes to the particulars, the buy-side can benefit from:

Faster, More Efficient Research: AI can quickly analyze vast amounts of data, help identify promising investment opportunities and conduct initial research much faster. This frees up valuable time for buy-side analysts to delve deeper into the most promising leads through interviews and further analysis.
Enhanced Due Diligence: AI can sift through mountains of financial documents, legal contracts, and other materials, pinpointing key information and potential red flags. This allows buy-side analysts to focus on the most critical aspects of due diligence, leading to more informed investment decisions.
Improved Portfolio Management: AI-powered tools can continuously monitor portfolio performance and identify potential risks or opportunities for rebalancing. This can lead to better risk management and potentially higher returns.

What about the sell side? AI translates into the next advantages:

Streamlined Virtual Data Rooms: AI can automatically categorize and organize documents uploaded to VDRs, making it easier for potential investors (buy-side) to find the information they need. This saves time for both parties and streamlines the due diligence process.
Targeted Client Outreach: AI can analyze investor profiles and preferences, helping sell-side professionals identify the most relevant investment opportunities for each client. This allows for more personalized pitches and potentially stronger client relationships.
Enhanced Deal Flow Management: AI can track market trends and identify potential acquisition targets, helping sell-side advisors source new deals and generate more revenue.

Negotiating with Confidence: AI as Your Strategic Partner

Negotiations are the heart of any M&A deal. Yet, it may sound weird to use AI during this phase, right? Still, even though communication will remain human-driven, AI can be a valuable asset at the negotiating table by providing critical insights and strategic support. How, exactly?

Firstly, AI can analyze data on previous acquisitions within the industry to identify common deal terms, valuation benchmarks, and negotiation tactics employed by competitors. This knowledge equips dealmakers with a stronger understanding of the negotiation landscape and empowers them to make informed decisions.

Secondly, AI can be used to simulate various negotiation scenarios based on different assumptions and market conditions. This allows dealmakers to test different deal structures, refine their strategies, and anticipate potential counterarguments from the other side.

There’s more to it. AI-powered tools can provide real-time analysis of data streams, news feeds, and social media sentiment during negotiations. This allows dealmakers to stay ahead of the curve, adapt their strategies on the fly, and capitalize on any emerging opportunities.

A Smoother Transition with AI in Post-Merger Integration

No matter what, the success of any M&A deal hinges on a smooth post-merger integration process. AI can be crucial in bridging the gap between two companies and fostering a unified culture.

For example, AI can be used to develop personalized onboarding programs that address the specific needs and concerns of employees from both companies. AI-powered tools can also facilitate cultural alignment by identifying areas of potential conflict and recommending strategies to bridge cultural gaps.

AI can streamline the complex process of integrating vast data sets from both companies. What is the benefit of that? Simple operational continuity, swift identification and realization of synergies across different departments can be improved. What is even more important, AI can also analyze historical data to predict potential integration challenges and recommend strategies to mitigate them.

How to Start Implementing Gen AI in Your M&A Activity?

Let’s say, you haven’t started applying AI yet. Using new technology may seem like a challenge, but it doesn’t have to be like that. While “slow implementation” is often recommended for AI adoption, M&A represents a scenario where a more focused approach is ideal. Thus, target generative AI for tasks rich in manual effort, repetition, or creative content generation. The best way to identify where you should start with AI, test and learn by applying it where you can reap real benefits.

Here is how you can start with AI step-by-step:

Conclusion

By adopting a human-in-the-loop approach and fostering a culture of innovation, M&A professionals can harness the power of AI to make more informed decisions, streamline processes, and ultimately achieve superior deal outcomes.

M&A Insights

Deal Making

Corporate Strategy

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