AI in M&A: Navigating the opportunities and risks

By Amanda Scott and John M. Bremen for CFO.com

In mergers and acquisitions, artificial intelligence is likely to provide what dealmakers and practitioners are constantly seeking: innovative ways to enhance efficiency, drive value and streamline processes. By automating M&A’s numerous processes and changing how work gets done, AI will have a dramatic impact on the execution of deals. It could save billions of dollars and create significant material value. However, AI also introduces new risks to be managed and mitigated.

 

Though generative AI is used in only about 16% of M&A processes today, that percentage is expected to skyrocket to 80% within the next three years. This rapid growth reflects the increasing recognition of AI’s potential to improve deal-making processes and unlock new possibilities.

AI has the power to enhance efficiency and ultimately streamline every stage of the M&A process. From target identification and valuation to due diligence and integration management, AI-powered tools can automate tasks, provide valuable insights and accelerate deal timelines. AI can foster innovation by automating document review, data analysis and risk assessment, allowing practitioners to focus on strategic decision-making and creative problem-solving.  

M&A deal phases poised to benefit from AI include: 

• Developing M&A strategy

• Sourcing targets

• Legal review

• Due diligence

• Deep data review

• Integration planning

• Integration execution

• Deal postmortem

AI is anticipated to have a far-reaching impact on M&A. For example, AI can accelerate due diligence, a critical phase in the deal process, by analyzing vast amounts of data, identifying patterns and providing valuable insights much faster than people. AI can also uncover critical factors that may have been overlooked, enabling dealmakers to make more informed decisions and better mitigate risk. 

M&A deal disasters can often be traced back to due diligence failures, hasty decision making and critical financial mistakes. In one case, diligence was mismanaged and overlooked, contributing to the ultimate write-down of $8.8 billion of an $11 billion deal. Incorporating AI into the M&A process will help ensure due diligence is conducted appropriately, data is analyzed, synergy models are confirmed and critical issues are flagged before signoff. 

AI can also improve efficiency by mapping deal steps, reducing the risk of errors and delays and automating responses to common queries. By leveraging AI, dealmakers can efficiently manage multiple workstreams, track progress and ensure seamless communication among parties involved in the deal.  

While concerns about job displacement due to AI are understandable, AI is more likely to enhance business functions and foster job-role shifts rather than simply eliminate jobs. Though almost every job will in some way be impacted by AI, widespread replacement of workers with AI is unlikely in the near term. In M&A, AI will handle repetitive and mundane tasks, enabling dealmakers to focus more on higher-value activities that require human expertise, such as relationship management, negotiation and strategic decision making. AI will complement and enhance dealmakers’ capabilities, rather than replace them. 

Numerous AI-powered tools and platforms designed specifically for the M&A process are rushing to market, offering game-changing AI capabilities for various stages of the deal, with the promise of providing dealmakers and practitioners valuable insights, automation and enhanced efficiency. There are AI platforms catering to: 

1. Deal sourcing: Promising to unearth the perfect target based on strategic criteria; 

2. Legal support: Reducing the time to prepare and review purchase agreements, identifying crucial deal terms and proposing markups; 

3. Financial analysis: AI-driven financial modeling and valuation to analyze complex data for more accurate modeling and deal valuation; 

4. Due diligence: Data room providers are integrating advanced AI features into their platforms, enhancing due diligence processes by automating repetitive tasks, flagging potential risks and extracting insights from voluminous documents.

Some are investing in developing their own tools. It’s important to remember that implementing large language models (LLMs) and generative AI for corporate use carries substantial risk due to the infancy of commercial use, potential data privacy concerns and untested security risks.

While the potential positive impact of AI is substantial, it does present some challenges, including compliance and risk. Responsible deployment of AI tools is a key requirement of the evolving AI regulatory landscape and practical limitations of AI tools. Those looking to deploy and rely on such tools in the M&A space will need to ensure there is always an element of human oversight to ensure validity and accuracy.

In these early days of AI, practitioners need to take ownership of carefully reviewing the final work product produced by AI and verifying all analyses and findings before closing the deal. In this era of transformative technological advancements, understanding the opportunities and risks associated with AI in M&A is paramount for informed decision-making and successful deal execution. 

As AI continues to advance and unlock new possibilities, dealmakers are well-served to embrace this transformative technology to stay ahead of the competition. By leveraging AI-powered tools and platforms, they can enhance efficiency, streamline processes and make more informed decisions. Rather than focusing on job displacement, dealmakers can view AI as a powerful ally that augments their capabilities and enables them to deliver greater value and more probable success. 

The future of M&A is here, and AI is at the forefront of this transformation. Those who embrace it now responsibly can position themselves at the vanguard of deal-making excellence.