- More than seven in ten (71%) M&A dealmakers expect in the next year to acquire companies offering AI capabilities or that successfully implement AI solutions, according to a report from Dykema.
- Meanwhile, three in four of the mergers and acquisitions leaders predict AI will have a significant impact in 2024 on M&A processes, including risk analysis and the sourcing of new deals.
- However, there are several key hurdles to the effective use of AI in dealmaking activities, including ethics and data privacy issues. Dykema’s annual M&A Outlook Survey features the views of 263 professionals from a cross section of executives and M&A advisors.
One reason for dealmakers’ strong interest in purchasing AI-focused companies is that two-thirds of them say generative AI will strengthen the value of businesses using the emerging technology in the next year.
Along those lines, they report that investment in automation and AI is one of the top three trends spurring M&A activity across sectors, including financial services, healthcare and manufacturing.
“Interestingly, although dealmakers have expressed reservations about artificial intelligence (AI), an overwhelming majority view this breakthrough technology as a potential boon for both the dealmaking process and enterprise value creation,” the Dymeka report says.
More than six in ten respondents (62%) view AI as likely to impact M&A risk analysis. Slightly fewer than half of surveyed dealmakers also believe AI will influence repetitive processes such as target screening (49%), deal processing (44%) and deal/valuation analysis (42%).
About one in three respondents (34%) view AI as likely to impact success forecasting, and 23% expect the technology will improve the integration of acquisition targets.
Additionally, some companies are already deploying AI at different stages of the M&A lifecycle “to accelerate decision-making, streamline due diligence, and source acquisition targets,” according to the Dykema report.
However, one reason dealmakers may be reluctant to view AI as broadly transformative to M&A is the difficulty in implementing the technology, the survey report says.
Additionally, 43% of respondents view ethical issues as roadblocks to incorporating AI in M&A processes and 36% highlight cybersecurity and data privacy concerns.
Other AI hurdles cited include required training/skills shortage (34%) and regulatory risk (31%).
“These findings underscore the fact that AI is—despite its potential and prominence in cultural and political discourse—still nascent,” the report says. “Many of these issues will need to be addressed before this breakthrough technology sees widespread rollout across the M&A landscape.”
Deal size and financing
The interest in AI among M&A professionals comes as businesses are increasingly seeking out smaller deals and using creative financing arrangements.
More than half of respondents (52%) expect small-market deal volume to increase in 2024, and 43% expect an increase in mid-market deal volume.
The report defines small-market deals as those with a total value of less than $100 million, and it defines mid-market deals as those with a total value of between $100 million and $1 billion.
Smaller deals are attractive because they pose less risk and are easier to finance, the Dykema report highlights.
Alternative financing approaches that dealmakers say have become more prominent as a result of decreased loan availability include third-party equity investments (49%), rollover equity (41%) and seller notes (35%).
Overall, nine in 10 respondents say they have worked on a deal in the last year with seller financing.
“To get these deals across the finish line, executives have started seeking alternative funding arrangements and expect to work on more transactions featuring at least some seller financing,” the report says.