Artificial Intelligence in M&A
AI is already speeding up some due diligence processes, but it might be a while before vendors of smaller businesses feel the benefit.
Rockworth has advised on the sale of Splink Industries, the technology company that created the James May Theory Test App.
Splink has been
The recent hype around generative AI has prompted every industry to ponder how things are going to change over the coming years. Most people recognise the transformative potential of AI. But opinions vary about what AI-based transformation might look like within different sectors of the economy.
The world of Mergers & Acquisitions is not immune from this discussion, and those of us within the industry see a steady stream of articles and whitepapers debating the future of deal-making.
On paper, the world of selling businesses could certainly be made more efficient using AI technology. At various points, the sale process involves the collation, analysis and interpretation of large volumes of data, often using manual methods and processes that could be improved by AI.
But in practice, it may be some time before technology delivers any meaningful changes to the sale process, especially for smaller transactions.
In the early phase of a transaction, a lot of our time is spent compiling a list of potential buyers for the business we are working with. This research combines creative, strategic thinking with data analysis. There are numerous data providers in the market that offer M&A advisors access to vast volumes of company and deal information. These tools allow for building complex searches using a massive array of parameters to produce a manageable data set. It is not yet clear what would be different or quicker about building a prompt for an AI model to produce similar results.
That said, it is definitely a space we continue to watch – AI does have the potential to improve the quality of the data sets and stitch together disparate sources of information. We will be interested to see if any new players emerge, using AI to offer compelling advantages over the incumbent data providers that currently dominate the market.
The process of marketing a business by engaging with potential buyers currently feels entirely beyond the scope of AI. It is and will remain a very human process. Every interaction required the corporate finance advisor to build trust, listen carefully and communicate thoughtfully. There may be ways to tinker around the edges of this process, for example by using generative AI to improve the tone and persuasiveness of written communication. AI tools could also be used for recording and summarising the content of phone calls and meetings. But the efficiency gains here will be marginal, and certainly not something that will significantly benefit the vendor.
Where AI has most potential for M&A is in the due diligence phase of a project. Indeed, this is an area where AI has been a hot topic for several years and there are products on the market that are already being used to accelerate and improve the accuracy of due diligence processes.
Legal due diligence has led the way. For big M&A transactions, legal due diligence can involve the collation and analysis of tens or even hundreds of thousands of documents. There are AI-based tools that are capable of analysing such volumes of information in a matter of minutes. Not only does this accelerate the legal due diligence process, but it also more reliably draws out the key legal risks that the buyer will need to address in the Share Purchase Agreement.
It is likely that financial due diligence will also become much quicker and make it easier for due diligence providers to identify underlying financial risks, such as fraud or reporting irregularities. AI technology could also be used to make more accurate predictions about the future performance of an acquisition target.
Overall, there is clear potential for AI to shorten the period of time between signing Heads of Terms and completing a transaction. This would be a fantastic outcome for vendors, since shortening the processes reduces the impact of the due diligence process on the business and reduces the risk of any trading issues development that could prompt the buyer to reduce the offered price.
However, it should be stressed that we are not seeing any evidence of shorter due diligence processes yet. In reality, it may be some time before the benefits of AI-technology trickle down to the smaller end of the M&A market.
