Expediting Deal Sourcing With AI

Artificial intelligence (AI) is slowly transforming the dealmaking world. By automating and streamlining the most labor-intensive and time-consuming tasks and processes, the technology is providing dealmakers with a competitive edge, allowing them to find success in an increasingly fast-paced environment.

Our recent study on AI’s impact on mergers and acquisitions (M&A) processes, 2024 Artificial Intelligence in M&A Report, details how this emerging technology is already being deployed across the dealmaking landscape. Almost half (44 percent) of respondents — a mix of global corporate and private equity dealmakers — who participated in the study’s survey say AI tools have improved their M&A teams’ efficiency.

These dealmakers see the automation of deal sourcing as a key area where AI can significantly enhance their M&A strategies. Almost a third of survey respondents believe that deal origination will be where AI will make the most substantial impact on the dealmaking process.

Broadening the deal universe

AI-powered deal sourcing can be a boon to deal success on several fronts. By delivering a steady flow of data-driven insights, it enables dealmakers to make better-informed decisions, develop innovative deal hypotheses and simulate a wide range of scenarios.

AI can help dealmakers analyze a much broader universe of potential targets, resulting in a more comprehensive and accurate list of viable deals. By analyzing volumes of documents, contracts and financial data, the technology can identify patterns and anomalies that the human eye might miss. It can recommend targets that are the best possible fit for an acquirer looking to grow inorganically, removing a significant amount of manual input and mitigating the risk of human error.

There is a growing buzz, too, surrounding AI’s potential to examine “unstructured” data. Natural language processing (NLP) technologies can analyze a vast amount of data such as emails, notes, images, audio and video files. This data could contain potentially valuable insights that might otherwise have been missed in older, more manual deal processes.

Bumps in the road

AI-powered deal origination is an exciting and rapidly expanding field, but it also presents new challenges. One major issue that dealmakers are contending with is data inaccuracy. Even with the most cutting-edge technology, low-quality data will lead to low-quality results. Another risk factor is the use of third-party technology to store sensitive company data. With cyberattacks an ever-present threat and regulation surrounding data privacy evolving rapidly, some dealmakers don’t want to expose themselves to potential risks. That’s why dealmakers must read the fine print more carefully than ever before. In some cases, the use of third-party providers may violate confidentiality agreements relating to deals.

Our survey reflects this cautious sentiment, highlighting data security concerns as a key challenge for dealmakers. One in five dealmakers say concerns around data privacy and cybersecurity have stymied their implementation plans for new technologies, including AI, over the past 12-24 months.

Amid all the exciting developments and varied applications of new technologies, it is important not to overlook the importance of human oversight. While AI has the potential to transform the deal-sourcing process by uncovering fresh insights and providing a holistic view of the deal universe, overreliance would be a mistake. Human judgment will have to remain paramount if AI-powered deal sourcing is to stay on the right track and deliver results.

Dealmakers should also resist the temptation to deploy too many new technologies simultaneously without first ensuring they have the right talent in place to manage and operate them efficiently. Respondents to our survey identify recruitment and retention of talent as a major hurdle, with the global shortage of workers with AI expertise compounding this challenge.

Seizing the opportunity

While there are obstacles to overcome, AI’s potentially transformative impact is impossible to ignore. The development of AI tools will continue to develop as seasoned M&A technology providers create solutions to alleviate hardship in the deal process, reducing onerous manual labor and freeing up time to focus on more value-added tasks.

By transforming unstructured data into clear and incisive intelligence, NLP and machine learning (ML) technologies hold the key to more targeted and accurate deal sourcing.

While the advantages are evident, the effectiveness of even the most cutting-edge AI tools depends on the quality of the inputs. Dealmakers must ensure that they have the right talent, reliable datasets and trusted technology partners to fully realize the potential of this powerful technology.

To learn more, download the 2024 Artificial Intelligence in M&A Report here