Thought Leadership  •  August 18, 2023

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How M&A Deals Are Being Enhanced with AI & ChatGPT

The use of ChatGPT in corporate markets may have made headlines about the adoption of artificial intelligence, or AI. However, it's not the first AI tool to find widespread use in business applications. Businesses have been using AI assistants for years, particularly when it comes to large data sets. AI is more efficient than even the most diligent employee, capable of analyzing large data sets quickly and with greater accuracy than a human. Read on to discover how AI systems and generative tools such as ChatGPT can help with data analysis, deal due diligence, deal sourcing and other relevant applications.

Why Companies Are Using AI in M&A Deals

Let's look at a few of the most common applications for mergers and acquisitions AI to understand how companies are using these tools. It's worth mentioning that AI changes so rapidly that new use cases are discovered as the tools and our understanding of them evolve.

Here are the ways most companies are choosing to use AI, as of this writing:

Deal Sourcing

The deal sourcing process requires significant time searching for M&A targets and analyzing data before making an offer. Compared to human workers, who have only so much capacity to search and review documents from a diverse range of sources, AI is more efficient. AI technology can search for M&A opportunities using defined criteria and return results, doing a superior job of keeping up with fresh data.

Accelerated Deal Timeline

Rushing the process can backfire. Companies who rushed mergers and acquisitions in the hopes of gaining market share have come to regret it. In some cases, bitter feelings from a previous bad experience can prevent them from taking advantage of new opportunities that are a better fit. AI tools can keep a deal moving forward without causing the added stress of rushing.

Enhanced M&A Due Diligence

The use of AI in M&A due diligence has taken off in the virtual data room environment. Tasked with reviewing thousands of pages of documents in a compressed time format, experts increasingly turn to AI assistants to support the process.

Artificial intelligence for M&A due diligence is capable of parsing data for key performance indicators with greater speed and accuracy than humans.

AI-equipped M&A due diligence software can scan thousands of pages of documents, from PDF reports to spreadsheets, and provide actionable information very quickly. This speeds up the pace of the deal, bringing benefits to both sides. Some estimates have revealed that companies save anywhere from 30% to 90% of time on the due diligence phase by using AI.

Many deals have an international component these days. Increasingly, parties need to communicate in other languages, review documents in original languages and use translation to ensure communication is understood. AI in due diligence tools like ChatGPT can provide language support when it comes to translating in the international deal environment.

Enhanced M&A Valuation & Deal Structuring

In an income-based M&A valuation approach, an expert typically reviews the business's financial statements to gain an understanding of the company's projected future earnings.

From there, they can work backward to calculate the value of the M&A target in the present day. AI can review the statements and provide a preliminary analysis for the expert to unpack in detail. AI can also use the valuation to determine benchmarks that can guide the process forward.

Regulatory Compliance

In an M&A, both sides have to adhere to laws and regulations. While each party will have their own legal counsel who can advise on how to comply with laws, AI plays a role here, too. Legal counsel may use AI to review contracts and other legal documents, checking for issues that must be addressed. Using AI can help you find and fix errors, avoiding the need for a last-minute fix.

Avoiding Unsuccessful Acquisitions

Sometimes deals fall apart. This can happen when a problem develops after the initial agreement that causes one or both sides to walk away from the planned M&A. It can also happen if a deal exceeds the timeline. Fortunately, AI can help companies avoid many unsuccessful acquisitions.

Within the due diligence phase, AI in M&A(s) can review documents looking for red flags. For example, inconsistencies within the documents or less-than-stellar reports from marketing, sales, human resources and other departments could be a warning of insurmountable issues if the deal proceeds. The company may seek to adjust the valuation based on information discovered in the AI due diligence phase, or it can decide to abandon the deal outright.

During the post-merger integration phase, players typically seek to realize operational advantages while decreasing redundancies. AI can review processes and internal structures with the aim of identifying areas to consolidate or streamline.

When it comes to roles and responsibilities, AI can also streamline workflows. For AI tools like ChatGPT M&A, post-integration tasks can focus on the best way to automate certain workflows. AI can enhance workflows by taking over some of the tasks previously performed by humans. This in turn allows human workers to perform the more complex and subjective tasks where it would not make sense to run an AI tool.

AI can also monitor the integration process in real-time, providing an overhead view of complex processes. This in turn supports better decision-making, because information can be acted upon faster.

M&A artificial intelligence is transforming the speed at which deals conclude and the pace of deals outright. This has the potential to create waves of change within the corporate market. As the technologies mature, there is no doubt that M&A deals will continue to be transformed by their usage. We at DFIN will continue to monitor changes to best understand how AI tools can support dealmaking.

DFIN's M&A software leverages AI capabilities to support due diligence, company valuation, post-merger integration and all aspects of the dealmaking process. Not only does DFIN provide the products companies rely on for complex corporate transactions such as M&As, we also keep up with the latest changes to help clients stay abreast of new regulations, compliance issues and technologies. Discover why global players choose DFIN as their AI in M&A(s) technology partner.