Financial history documents many mistakes made by megacorporations, such as AOL’s (America Online) acquisition of Time Warner in 2000, which resulted in the loss of countless jobs and the destruction of retirement accounts Securities and Exchange Commission and the US Department of Justice and nearly destroys shareholder value.

Would the use of AI have changed the situation? A growing number of companies seem to be saying yes. Undoubtedly, AI will play an increasingly important role in the M&A ecosystem, particularly in identifying attractive targets and optimizing merger success rates. This interest in AI-driven companies will add younger, growing companies to the list of future destinations.

AI and its impact on M&A activities

Investors are always looking for a competitive advantage. Therefore, it is hardly surprising that technological innovations are used to optimize performance. The financial sector relies on large amounts of data that need to be processed quickly and correctly. Machine tools have the potential to transform M&A activity by making boring and expensive processes “stronger, faster, in a word better” like the bionic astronaut popularized by the TV series The Six Million Man in the 1970s.

Just as the internet has proven to be a tool for learning about anything imaginable, generative AI tools for M&A will maximize the productivity of tedious and costly tasks on schedule and budget. This applies in particular to due diligence, data analysis, trend identification as well as post-merger integration activities such as contract updates and data migration.

It is estimated that the use of AI in M&A activities will reduce contract due diligence and legal review tasks by up to 90% and 95%, respectively. Transactions involving more than one language, regulatory issues or geopolitical obstacles will also benefit from AI.

The valuation work of finding comparable companies and estimating the value of the companies can be done using generative AI tools. The human resources that are freed up as a result can be used for more creative and value-adding tasks. These tools are already being used by companies such as Deloitte and KPMG as part of their M&A advisory services.

Generative AI can identify attractive targets and spot potential problems, preventing costly mistakes. Long before the current AI hype, a Canadian investment firm used Toronto-based startup OutsideIQ’s AI anti-fraud and anti-money laundering software (“The Brain”) to complete its due diligence process. The software uncovered problems in the asset statement showing that the Sino-Forest company owned less land than it had claimed.

Analyze the corporate culture

To increase the likelihood of a successful merger, algorithms can uncover a company’s best attributes and thus predict winning combinations. Even less objective elements such as company culture can become quantifiable using appropriate data such as employee turnover and seniority.

As a rule, agreements were concluded on an ad hoc basis on the basis of interpersonal relationships. While this aspect of mergers and acquisitions, particularly in private companies, is unlikely to change, generative AI tools will have more and better data on private companies to draw from.

Therefore, they will enhance face-to-face interactions, remove human emotions from the process, and reduce the risks associated with emotional and cognitive biases. In this way, both parties not only receive greater information transparency, but new opportunities can also arise.

We are still in the early days of generative AI driven mergers and acquisitions. However, through the use of the right data and algorithms, coupled with human creativity and intelligence, these tools should reduce the failure rate of mergers and acquisitions and result in successful and value-added transactions for all parties involved.