Artificial Intelligence (AI) is transforming industries worldwide. It promises improved user experience, business efficiency, customer service, and productivity gains in nearly every sector in which it’s been implemented. In turn, investment interest in the technology has been rapidly increasing.
The funding of AI-focused companies and technologies reached $13.1 billion in Q1 2024, up 24% from the previous quarter. This ultimately fuels its quick growth. Expectations are that its market size will reach $407 billion in 2027. It’s important to note that human involvement is fundamental to the success of AI in M&A.
Key Takeaways
- AI is rapidly transforming industries, resulting in $13.1 billion in funding in Q1 2024, with expectations to hit $407 billion by 2027.
- TMT M&A activity leads despite a slight decline, showcasing the digital imperative across industries, including increased energy deals.
- AI helps identify M&A targets and aids in valuations, but human involvement remains crucial for qualitative assessments.
- Many M&A professionals hesitate to fully adopt AI due to concerns over data privacy, with 70% wanting regulation.
- Despite hesitations, 40% of dealmakers report AI improves productivity, and over half believe it can speed up M&A processes by 50%.
Some of this M&A activity has already appeared on Datasite’s platform, which facilitates more than 14,000 new deals annually. This is evident in the form of a rebound of technology, media, and telecommunications (TMT) mergers and acquisitions (M&A) activity. Businesses can’t afford to fall behind the pace of innovation via available technologies. M&A offers one route to fulfilling these objectives.
Dealmakers
From a deal volume perspective, TMT is leading the way this year. This is true even as TMT deal kick-offs on Datasite dipped year-over-year (YoY) by 5% in Q4 2023 and were off 3% in Q1 2024. TMT M&A continues to dominate because of the digital imperative being felt throughout the cross-section of industries. For example, increased energy demands to fuel the data centers required to power AI’s infrastructure could mean there will be more green energy deals to counteract AI emissions.
In the six months from October 2023 to March 2024, energy deals, particularly asset sales on Datasite, were up 13%. Since this figure represents deals at their inception rather than announced, it offers a glimpse into potential M&A activity in the coming six to nine months.
AI isn’t only grabbing the attention of dealmakers as a significant investment area. It is also acting as a technology they can use to better manage deals themselves. For instance, AI can assist in identifying potential M&A targets by analyzing vast datasets and market trends. By using anonymized private equity and other transaction activity from within a closed and secure platform, some AI-powered applications are already helping dealmakers identify deal targets faster.
AI can also aid in the valuation process by providing objective analyses based on historical data and market factors. However, while AI can enhance accuracy and efficiency in valuations, human judgment remains essential. It is especially crucial in evaluating qualitative factors and forecasting.
Additionally, by automating repetitive and time-consuming tasks, AI enables dealmakers to focus on strategic-level decisions and creative thinking. In fact, achieving a balance between AI and human involvement is key to maximizing productivity and outcomes.
Yet, some are hesitant to adopt the technology, and many M&A professionals are proceeding cautiously. They are especially careful when it comes to integrating AI, especially generative AI (GenAI), into their core processes. With concerns around data privacy and security, research shows that over 70% of global dealmakers want the technology regulated. This may also explain, in part, why over 60% of dealmakers say their organizations have low GenAI adoption or are only using it experimentally.
Conclusion
Still, most dealmakers aren’t blind to the opportunities AI can deliver. Around 40% of dealmakers acknowledged they had witnessed increased productivity through more streamlined processes. Additionally, over half say it has the potential to speed up the M&A process by 50%. As collaboration between industry players and governments continues, AI adoption may become a greater focal point this year. For instance, Europe just set a global benchmark for the regulation of technology.
Looking ahead, it’s clear that AI and GenAI will continue to be catalysts for dealmaking activity over the next few years. This includes companies looking to acquire AI technologies for optimized workflows and those leveraging new tools to increase M&A efficiency. Keep in mind the importance of human involvement in this process.
