Kunal Gala, Deal Value Creation Partner, BDO IndiaAI is permeating every industry around the world, revolutionizing the future and driving growth. Approximately 25-35% of companies are leveraging AI in their operations, and are seeing an average productivity increase of 30%. More and more organizations are seeking to merge with AI companies to gain access to advanced technology, talent, and market expansion. For example, IBM acquired his Apptio. Databrick has acquired Mosaic ML. And Cisco he acquired Splunk.
Based on our conversations with M&A and C-suite leaders, only a small percentage of organizations are currently leveraging AI in their M&A activities. However, over the next two years, four out of five people involved in M&A are expected to incorporate AI into their workflows. Once introduced, AI will play a key role in this function as it will enhance the M&A process at every stage, from pre-deal evaluation to post-merger integration.
M&A strategy formulation and deal sourcing
In M&A, strategy formulation is important in determining the organization's growth trajectory. AI embraces evidence-based decision-making. AI’s predictive analytics provides valuable insights into business trends, industry dynamics, and emerging but untapped niche markets, making strategy formulation more accurate.
Finding suitable acquisition targets can be time-consuming and difficult. AI leverages numerous datasets to filter potential targets and identify those with the highest potential for synergy. This augments the limited pool of private company data and increases discoverability by accelerating the pace of the process.
due diligence
Due diligence is a tedious and arduous task. On the purchase side, this begins with extensive research on the target company using available public sources. The sell-side process begins by setting up a virtual data room. With the help of AI, today's buy-side can mine vast public resources, including contracts and financials, to understand identified risks and, in some cases, expose probability scenarios. FMCG leverages AI to assess brand influence on social media for potential target companies. On the sales side, the VDR process is simplified by AI algorithms that automatically position uploaded files and suggest masking of sensitive data. We help you find gaps, summarize documents, and create reports based on flagged issues and expert insights.Business evaluation
In a merger, it is important to perform accurate evaluations from both the buyer's and seller's perspectives. AI algorithms use financial and non-financial data to ensure accurate valuations and evaluate metrics such as brand equity, customer satisfaction, and market position with a broader perspective beyond traditional approaches. Acquirers therefore gain better insight, leading to favorable outcomes. AI also handles basic activities such as identifying comparable companies and aggregating data, freeing up human capital to focus on strategic elements.
Post-merger integration
The post-transaction period includes mergers and integration of companies with different organizational structures, processes, and technologies. AI helps automate the integration process and ensures a seamless transition. Organizations can use AI-powered predictive models to anticipate emerging problems. Evaluate your data to identify your weakest points that can be improved.
AI can also play a role in talent retention by identifying key talent critical to the success of the combined enterprise and recommending plans accordingly. Over time, as AI evolves, it analyzes and defines integration blueprints, workflows, and infrastructure, discovering potential synergies that lead to recommendations for optimized and customized integration strategies.
major challenges
Data privacy: Protecting sensitive information requires employee training, strong cybersecurity, GDPR compliance, and user access controls. More than 35% of organizations identify this as their biggest challenge with Generative AI.
Bias and fairness: It is essential to use strategies such as prompts and content filtering to address toxicity, as well as tools to reduce the biases inherent in AI algorithms and ensure data fairness. More than 20-25% of organizations are concerned about bias in generative AI.
Corporate compliance: Complying with evolving regulations and standards governing the deployment and use of AI is necessary for business leaders, but it comes at a significant cost and often freezes executive bandwidth.
Skill gap: More than 50% of organizations face challenges related to skills gaps when using AI. Talent shortage is one of the main reasons for the slow adoption of AI technology in M&A.
Synergy between AI and human expertise
Through sophisticated vetting, diligence, and execution through many transactions over the years, experienced buyers have learned how to become dealmakers. Generative AI, while powerful, cannot replace a skilled M&A practitioner. Technology supports humans rather than replacing them, allowing for accurate and fast transactions. AI is good at pattern recognition, but humans bring interpretive skills and strategic foresight.
Optimize human-machine synergy by deploying AI for data-intensive tasks and human analysts for emotionally intelligent activities. This collaboration improves transaction outcomes by leveraging the strengths of both parties. Even in the AI-driven M&A era, human advisors remain essential and complement AI to maximize the value of M&A.
Incorporating AI into the M&A space is more than just a passing trend. It streamlines operations, facilitates decision-making, and complements human expertise for efficient transactions. The usage rate of generative AI in M&A is expected to reach 75-80% in the coming years. Despite the challenges, the integration of AI into M&A is showing significant growth and shaping the future of trading.
The author is Kunal Gala, Partner, Deal Value Creation, BDO India.
Disclaimer: The views expressed are solely those of the authors and ETCIO does not necessarily agree with them. ETCIO is not responsible for any damage caused directly or indirectly to any person/organization.
