The Next Generation of Deal Making: M&A Technology in 2021
While the industry may be slow to adopt artificial intelligence and machine learning, those who use the latest in M&A technology will have the advantage.
Artificial intelligence (AI) is coming to the deal markets. Acquirers are expanding their use of AI and its related technologies with everything from machine learning (ML), augmented intelligence and natural language processing (NLP) to advanced analytics.
As the deployment of such tools expands and accelerates, buyers gain the means to obtaining greater insight into everything from target selection and valuation to integration and synergy realization. For sellers, it’s time to join in.
AI Gives Buyers an Edge
One potential future is that of a vast disparity between large-scale, serial acquisitions teams and the only one-deal-in-a-lifetime mid-size sellers, in terms of analytical capabilities and insight.
Sophisticated buyers will invest in a broad array of advanced tools arming themselves with substantially more information than their targets. Buyers thus obtain greater leverage for themselves across any transaction.
This could be bad news for a seller. But the good news, says Chris Smith, National Strategy Solution leader for Advisory Service at Grant Thornton LLP, is “that so far, much of what we’re hearing about AI in the deal markets appears to be a lot of hype.”
While the coming future of M&A will certainly be AI-infused, Smith says he works with some of the most active dealmakers imaginable, “and so far from what I’m seeing, AI is being deployed on a very limited basis.” In other words, would-be sellers are not yet heavily disadvantaged. Moreover, if sellers begin moving now, they can lessen the coming analytic imbalances.
Tactical AI: Timing is Everything
A good place to start, says Smith, is for sellers to begin exploring opportunities in “sentiment-based” AI.
“that means you can access tools that can ask: What is the sentiment of our customer base? What is the sentiment of the investment community? What's the sentiment right now in the financial markets for our sector; our company and what it provides?”
Dramatic advances in natural language processing coupled with human-supported machine learning enable AI platforms to scour and scan the internet including all social and broadcast media, gathering unstructured data from both text and video.
Advanced analytics and ML, focused and trained by humans, can then gauge trending sentiments as they relate to a company, its product(s) or service(s), categories/sectors, reputation or whatever factors are deemed relevant.
Consider timing – an area where sophisticated buyers are laser-focused. As Smith explains, buyers seeking to optimize their timing to drive the most value for themselves across their transactions is a task well-suited for sentiment-based AI.
But sellers can just as easily game timing to their own advantage – using the same toolsets that are available to acquirers. In practice, rather than building such tools from scratch, acquirers more often than not are working with providers such as OpenText, Clarabridge, LiveRamp and HootSuite.
For a seller, says Smith, “that means you can access tools that can ask: What is the sentiment of our customer base? What is the sentiment of the investment community? What's the sentiment right now in the financial markets for our sector; our company and what it provides?”
Such intelligence can go a long way toward determining what to sell – whether that’s a carveout or the entire company – and when to sell it.
Such tools could also be used to help identify and reach out to likely potential acquirers. A seller with deep insight into key trends would find themselves in a stronger position to pitch its merits and value to a buyer.
Moreover, it may be able to better identify non-traditional buyers with aggressive and evolving business models for whom trending sentiments indicate your company could be valuable.
The tools just mentioned can help sellers improve their timing – now, today. But in truth, the best time to begin thinking about a divestiture is several (or even better, many) years prior to the desired exit or carveout.
This also means all mid-sized companies should be embracing sentiment-based AI now, today, as an ongoing tool for strategic decision-making.
“There’s a lot you can do with AI of a predictive nature,” says Smith. “For example, is there hope for this product/service/segment or is it dying a slow death?” Insights of this nature can lead a company to make changes that can lead to stronger valuations down the road or even to decisions about which assets – carveouts – might be of greater value if sold to an acquirer.
Noteworthy within this area, says Smith, “is that we're seeing a lot of this capability being built into customer data platforms like Salesforce.” More and more, says Smith, such providers are focusing on using AI tools to help users “understand customer satisfaction, retention and similar metrics which can help improve valuation over time.”
On Demand Webinar: How Top M&A Dealmakers Utilize Technology to Their Advantage
From here Smith suggests that with the discussion drifting from immediate divestiture or carveout to medium-term valuation and later sale – why look at advanced technologies and stop at AI? “If the window is a bit longer and the seller is thinking about prepping the company for a future sale – why stop at AI? Owners should also be looking into tools like robotic process automation for streamlining workflows or robotics for manufacturing, warehousing and other use cases.”
"If the window is a bit longer and the seller is thinking about prepping the company for a future sale – why stop at AI?"
Advances in such areas can be transformational for many companies, leading to significantly greater valuations. But to realize this value, sellers will need to be conscious of the likely breakeven points for such investments. Note also, says Smith, that any sophisticated acquirer will likely be looking at a target with plans to make such investments themselves.
As Smith explains, “It’s a driver of the value of your company they likely already see, but it’s not something they will share with you in their offer. But by exploring and understanding this value, this knowledge could aid a seller in its negotiation.”