Simon Nichols
14 May '24

4 minute read

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ChatGPT captivated the world. Nvidia’s stock soared – is AI the next game-changer for M&A deals?

Well, the same wave of AI boom and innovation is crashing onto the shores of M&A. At our recent roundtable event for private equity investors and alternative lender leaders AI was a topic of lively discussion.

We’ve seen the growing adoption and impact of AI throughout the deal process. No longer relegated to speculative discussions, AI has now started to shape transaction processes. Driving an accelerated and more efficient due diligence process. Whist encouraging professionals to confront a future filled with uncertainty and opportunity for those brave enough to be early adopters.

AI and Business Model Disruption

One of the most pressing concerns for PE firms is the potential impact of AI on the target business model. Advances in AI technology are increasing at exponential pace. Discussions at Investment Committee (IC) meetings now frequently address the question of AI-related risks. The fear is that AI could rapidly render a target company’s business model obsolete, leading to a loss of competitive advantage.

This highlights the need for a more nuanced approach to target selection, where PE firms must assess not only a company’s current performance but also its ability to adapt and thrive in a rapidly evolving technological landscape. So, whilst there are obvious threats here, there are also significant growth and value creation opportunities.

The Rise of AI in Deal Processes

However, AI isn’t just a threat; it’s also becoming a valuable tool within the M&A process itself. We’re seeing a growing adoption of AI applications that can streamline tasks and improve efficiency. For example, AI can now generate first drafts of critical documents like Investment Memorandums (IMs) and IC papers, freeing up valuable time for dealmakers to focus on strategic considerations. Using data analytics and automation more effectively can also significantly streamline the ability to download and interpret ‘raw’ financial information from sellers at the start of a due diligence process. Additionally, law firms are utilising AI for early-stage review of Sale and Purchase Agreements (SPAs), further accelerating deal timelines.

Reimagining Due Diligence

The traditional due diligence process, involving mountains of data analysis, is ripe for AI intervention. AI can analyse vast amounts of financial records, contracts, and other documents to identify potential risks and opportunities with greater speed and precision.
This shift requires advisors to adapt their skillset. Instead of focusing on data collection and analysis, advisors will need to refine their skills in areas like data interpretation, critical thinking, and strategic questioning of management teams. This will allow due diligence providers to focus on the important value drivers of a deal and spend more time giving high-quality, real-time advice and recommendations.

Looking Ahead: Uncertainty and Promise

The M&A community acknowledges the ongoing development of AI and the uncertainties surrounding its long-term impact. However, there’s a strong sense of optimism about its potential to enhance efficiency and generate valuable insights.

PE professionals and lenders recognise the need to stay informed about the latest advancements and potential applications of AI within the M&A/PE space. By proactively embracing AI and its capabilities, private equity investors can gain a competitive edge and navigate the evolving M&A landscape with greater confidence.

The dance between AI and human expertise in M&A has only just begun, leaving the future of deal-making a fascinating space to watch!

To find out more about how our Cooper Parry Deals team can navigate the evolving transactional landscape and support your needs, please visit our Deals page.