The World of AI and M&A

By Jamie Lasaki & Demi Darbey, with contributions from Max Richardson of Richardson Capital Advisory and Peter Dosanjh of the Majestic Securities Group.

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The artificial intelligence (AI) revolution is well underway.

It is all over our feeds and is the new emerging technology designed to perform in human-like ways and make our professional and personal lives easier. You may have used the popular chatbot app ChatGPT, the transcription tool Otter.ai or the navigation app Waze to get from A-Z, fast! You may not however have thought that AI had a place in the corporate world of M&A but with its continual advancement, it is no wonder that some M&A teams are beginning to explore leveraging the technology to assist in and enhance decision-making processes, streamline due diligence exercises and predict financial outcomes efficiently. This article will delve into the realm of AI and its use within the M&A process, specifically the impact of AI and the way it will enhance modern day processes.‍

The Impact of AI on Private Company Sales and Acquisitions‍

For companies strategically looking for opportunities to grow and diversify through acquisition, AI is a powerful tool they can make use of in order to analyse huge swathes of data. Whether for analysing market trends, competitor strategies or historical deal outcomes, all of these approaches provide a data-driven approach to determine whether to pursue an acquisition. Further, AI can be adopted to provide an analysis of positions during real-time negotiations in order to provide a view on the overall effect of the proposed negotiated terms. Despite its capabilities, AI cannot be solely relied on and professional advisors(humans!) must be central to all transactions. Peter Dosanjh, Chairman of Majestic Securities said:

“Due diligence is the key to any acquisition. It is important to fully understand the sector, any challenges that the target company is currently facing or is likely to face. Current or anticipated legislation which may affect the target business needs to be fully understood and factored in. No seller is going to offer a business for sale by showing their business in bad light. Every business for sale normally will show graphs with anticipated upward trends in revenue, profits etc. Understandably the seller is trying to set up a stall which shows their product for sale in the best light. The buyer needs to look beyond the graphs and make an appraisal based on their experience and wisdom.”‍

It is this human critical thinking which is key and to support such with the use of AI will allow businesses to get the best out of a possible deal and avoid any potential disasters.  

As well as the above, AI can be used to sift through vast amounts of information to identify companies that match specific strategic and financial criteria allowing for discoveries of opportunities that might have otherwise been overlooked using manual methods. ‍

Can AI Help with Change-Management?

During the acquisition process, one of the themes that is always a concern for buyers, but also sellers, is cultural fit and post-merger integration. Buyers are motivated to acquire companies that fit their existing portfolios or add a level of diversity likely to complement their buy and build strategy. While Sellers are keen to see the legacy of their businesses built upon by new management teams and as Max Richardson of Richardson Capital Advisory says to sellers, it could be “the emotional attachment, the financial implications or simply wondering what you’ll do with all your free time, selling your business may be one of the hardest things that you’ll do as a business owner”. ‍

AI enabled change-management and post-merger integration is therefore an attractive and exciting prospect for buyers and sellers in the current market when they are considering post-completion matters.

AI powered project management can help simplify the process of integrating two organisations by identifying key milestones, employee turnover rates, tracking processes and ensuring both companies’ cultures are aligned to leverage the strengths of each entity for a smooth transition. AI can also identify the areas for improvement which will allow a buyer to optimise the operations and help tailor the integration strategies. The importance of post-completion integration is not to be underestimated and Peter Dosanjh, Chairman of Majestic Securities said:

“Having acquired a company, the integration into our existing business is vital. Some of the planning would have taken place prior to the acquisition because integration would be one of the reasons for such an acquisition. Therefore, we always look at integration as a positive contribution from us to the new acquisition.  Our view is that the new acquisition is looking to us as the new parent company to drive the business forward with the benefit of our expertise and in almost all of the cases, we are proud to state that we have achieved this. There are always challenges but proper planning and consultations with all stakeholders will always ensure a successful outcome.”

The Pro-Innovation Approach to Regulating AI‍

While the power of AI is undeniable, this conversation cannot be had without considering the intersection of AI and GDPR. With every technological advancement is a cautionary tale to keep things in check and the use of AI technologies is no different.

The Information Commissioners Office has released guidance for organisations, the European Parliament has conducted studies and countless discussions have been had (and continue to rage) about regulating the use of AI and ensuring sensitive data is handled within the confines of appropriate regulatory measures. One of the ICO25 commitments is designed “to help organisations adopt new technologies while protecting people and vulnerable groups.”

Concerns from the business community around the use of AI and adequate regulation formed part of the backdrop of the recent UK election campaigns. Business leaders will want to see actions from the new government that lean into the advancements and power of tech, while taking a firm stance on regulation. The previous Secretary of State for the Department of Digital,Culture, Media and Sport has taken a pro-innovation approach to regulating AI and in the forward to the AI Regulation Policy Paper said:

“I want the UK to be the best place in the world to found and grow an AI business and to strengthen the UK’s position so we translate AI’s tremendous potential into growth and societal benefits across the UK.” ‍

In conclusion…‍

The extent to which AI becomes a standard part of everyday M&A practices may vary depending on factors such as industry adoption, regulatory considerations and technological advancements. Despite the benefits of AI, it is important for those harnessing its power - business owners and the professionals advising them - to strike the right balance between reliance and careful on-going management of their systems. While AI may be appropriate for use in some M&A deals where there are vast amounts of due diligence to review within a short period of time and with limited human resource, the vast majority of private company sales will remain to be led by invested teams who understand the nuances of the deal and where the cost of AI support is prohibitive. Machine-led data analysis and processing cannot exist in a vacuum. The various facets of business sales and acquisitions must continue to be human-led if we want to operate in an environment of collaborative deal making, delivered by dynamic teams of professionals working to achieve the best commercial outcome for multiple clients. Max Richardson comments that “Given the significance of such an event [a business sale]; the time invested, the expertise brought in and the preparation you put into a sales process couldn’t be more important.”

As professional advisors, we will be keeping a keen eye on progress and will continue to liaise with our professional friends (the accountants, IFAs, investors etc.) and clients to ensure that we provide a human-centric, commercially viable service, which is enhanced for efficiency through technology. Peter Dosanjh says:

“Having good advisers on your side is crucial to the whole process. A team of experienced corporate finance advisers who can make sense of the numbers and interpret these in simple format that you can follow is very useful. This information will also be useful to the bank if you are raising finance.  The final piece of the jigsaw is good corporate lawyers who will negotiate on your behalf and will guide you through the minefield of the SPA, Employment, company Leases etc..[It] is pivotal because they will continually manage the deal with “make or break” situations which may arise through the negotiation processes.”‍

Richardson Capital Advisory typically, work with businesses and their owners up to 2 years before a sale and guide clients through the exit-process. To find out more about their services, click here.

Majestic Securities Group owns the EIC Partnership amongst other business interests. Click here to find out more.

This article was put together by Demi Darbey and Jamie Lasaki. You can contact them at the links.

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