The devil is in the details- is relevant when it comes to Mergers and Acquisitions (M&A). The reason being, majority of corporate contracts have restrictive conditions on assignability, which implies that involved parties could benefit from knowing if contracts need to be terminated or renegotiated.
However, until recently, the only way to be sure was to manually review hundreds of agreements and then record key terms and provisions. A slow and tedious process, requiring much more resources and time. But now, advances in cognitive technology including AI are enabling the rapid identification and extraction of key provisions in no time.
The term Artificial Intelligence (AI) is a broad concept that refers to technology that allows machines to carry out tasks that are ordinarily performed by humans. In order to perform these tasks, AI requires the development of software which allow machines to replicate different elements of the complicated human thinking process.
HOW DOES TECHNOLOGY HELP IN M&A?
Dependency on technology, makes it possible to have a comprehensive view in the same time period in which analysis to go beyond just basic review and more. Companies are calibrating better at synergies and addressing the obstacles immediately.
Technology at the core of Value creation and growth enabler
Companies are increasingly recognizing the need to own technology instead of outsourcing critical functions to third-party vendors and this is becoming the key element which is driving the M&A strategies for most Indian companies.
Further, with specialists in deal strategy, is leveraging state-of-the-art technology to speed up M&A and free up resources. Thus, in such cases, the use of cognitive technology is becoming more and more accurate with its ability to overcome human limitations. CEOs no longer see technology as a cost of doing business in M&A. Infact, 74% of CEOs say- “technology is a growth enabler or source of competitive advantage.”
GROWTH IN M&A
M&A decisions are led by business and financial managers. But, there are several potential gains for acquirers by integrating technology aspects into M&A decision making.
It may help in avoiding costly errors and not to mention, it will reduce the failure rate of M&As. More importantly, it could help acquirers to better realize the true value from the technological assets they acquire.
SCOPE OF AI
Keeping in view the specific areas of M&A process, AI could transform the relating activity as follows:
- Market and Sector Data Extraction: Machines could extract economic or sector data in real time which would allow firms to have a much more detailed and nuanced view of the business realities. A company could develop stronger M&A strategies and efficient transaction timetables.
- Company Selection: Once a general M&A strategy has been developed, AI could be used to identify potential M&A targets and track information about them or information that affects the business models.
- Due Diligence: AI will allow acquirers to develop increasingly sophisticated models of due diligence where the work of advisors will be accompanied by various types of AI-assisted search queries.
- Business Valuation: In connection with the market valuation method, AI could be used to extract in real time EBITDA and public share price data to create a live database of EBITDA multiples. It could also be used to create individualized valuation adjustment formulas.
- Add-On Transactions and Exit Strategies: due to its ability to monitor and calibrate company performance, competitor performance and larger market conditions, AI will be able to help the companies better plan post-acquisition steps.
CONCLUSION
Advancement in AI is going to allow machines to access and analyze exponentially increasing data about markets, economies, companies and consumers, which will assist companies and financial analysts to gather and process information that can be used to make different types of M&A related decisions. It will therefore make the core business process faster, efficient and accurate.
With all that is going on, we can say that merger and acquisition decisions of Indian companies for now and onwards will most likely be driven by their need to access the key technologies including AI in order to achieve strong and sustainable growth. As the depth and complexity of AI will grow so will the range of its application use in vital business processes.
It must however be noted that, advanced technology isn’t a substitute for people. Instead, it is a force multiplier that allows people to better their work in less time, more efficiently and if possible, at a lower cost. Technology is without a doubt a powerful tool, but it’s the people that make it work. If practiced with caution, this rise in technology and AI could be a boon for companies as technology is often seen as the “longest tent pole” in M&A.
This is only for informational purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter of this alert, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.
Sources: www.livemint.com, www2.deloitte.com, www.accenture.com, www.onetoonecf.com