Artificial intelligence and

mergers and acquisitions

Observations from the frontlines and how
to prepare for the coming shift
 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

Artificial intelligence (AI) has a powerful new variant,

Generative AI (GenAI). GenAI shows promise as game-
changing technology given its combination of novel features,
accessibility by nontechnical users, and scalability across an
enterprise. This combination of traits has the potential to un-
lock new sources of value across the enterprise.
Unsurprisingly, organizations want to know what this all 4.This is only the beginning, and when it comes to
means for dealmaking and, most importantly, how to GenAI, winners will be defined by their ability to
realize its value to mergers and acquisitions (M&A). navigate early challenges and identify the right
choices needed to win.
In an M&A context, it is easy to see how GenAI could
create a competitive edge for early adopters. Its ability to What about the second question: How can enterprises
ingest, interpret, and summarize significant quantities of capitalize on this opportunity? Given the indications
data; automate manual and labor-intensive processes; above, we recommend serious consideration of the
and uncover new insights and questions are all potential following actions:
avenues for enhancing returns during M&A. The
1.Stand up or strengthen sensing capabilities using
opportunities are numerous, but there is a clear risk:
internal and external resources, to keep a pulse on
Leaders who choose to defer action may lose ground to
AI and GenAI activity, considering direct and indirect
those who seize first-mover advantage.
competitors and partners.
Before diving in headfirst, M&A leaders and executives
2.Recast the M&A strategy by taking into consideration
should ask: How will GenAI affect M&A, and how can
how AI and GenAI might affect existing value chains
we capitalize on this opportunity?
and opportunities to capitalize on disruption and drive
To answer the first question, four key predictions are greater growth and value creation throughout the
well-founded: portfolio.

1.Deals will increasingly focus on (i) the acquisition of 3.Identify and invest in experts that can help
AI- and GenAI – capabilities, assets, and data, and (ii) validate and amplify AI and GenAI opportunities
the divestiture of business models vulnerable to and that bring a blend of commercial, operational, and
AI disruption. technical perspective.

2.Meaningful application of GenAI will enhance the 4.Prioritize and test AI use cases to develop a deeper
M&A process across the entire life cycle, improving understanding of capabilities and limitations and to aid
speed, quality of insights, and financial outcomes with identifying the most promising opportunities to
during execution. implement across the enterprise.

3.GenAI will continue to gain momentum in M&A as

early adopters employ it as a key lever to create value With the stage set, let us dive into the details.
from the top line to “heart of the business” functions.

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

Four key predictions

1. Deals will increasingly focus on (i) the acquisition and look for ways to further exploit opportunities.
of AI- and GenAI – capabilities, assets, and data, and Similarly, for enterprises that find the basis of their
(ii) the divestiture of business models vulnerable to competition has fundamentally changed, some may
AI disruption. elect to divest noncore businesses to reinvest in new
and differentiated capabilities.
Private equity and strategics are increasingly buying AI
and GenAI capabilities. According to Crunchbase, GenAI 2. Meaningful application of GenAI will enhance the
and AI startups raised almost $50 billion in 2023, a 9% M&A process across the entire life cycle, improving
increase over 2022 levels.1 Furthermore, we see AI and speed, quality of insights, and financial outcomes
GenAI deal activity across nearly all sectors. See below during execution.
for recent industry examples:
With its ability to digest large quantities of data,
• Technology: Acquisition of AI based capabilities to synthesize and summarize findings quickly, develop
enhance AI Business offerings to improve customer quantitative and qualitative analyses, provide
experience and productivity. recommendations and predictions based upon pattern
recognition, and refine outputs through deep learning,
• Life sciences: Acquiring products from a clinical-stage AI and GenAI can make an impact across the full M&A
drug discovery firm, which uses AI for a proprietary life cycle.
drug discovery engine.
To date, much of the focus has been earlier in the
• Insurance tech: Acquisition of AI-driven cyber risk life cycle. This is likely driven by companies starting to
analytics and GenAI-enhanced underwriting and apply it where they are most comfortable and feel the
quoting. least risk. Key examples include using AI and GenAI to
• Oil and gas: M&A and investment in AI-enabled digital evaluate markets, products, and technologies to inform
models that can increase operational efficiency by strategies, identify gaps or vulnerabilities in product
enhancing reservoir characterization. portfolios, and prioritize targets that fill those gaps. In
fact, several private equity funds are already engaged
As these acquisitions show, AI and GenAI are a rising in exercises to understand how GenAI could have an
trend in multiple sectors. Goldman Sachs Research impact on their portfolio of investments.
predicts that AI investment could approach $200 billion
globally by 2025,2 which is likely to set the stage for AI is also helping to identify targets in a novel way. In
future business strategies in an increasingly AI-driven place of typical screening tools and criteria, AI and
global market. machine learning (ML)-enabled screening tools help
uncover previously “hidden” options by presenting new
Additionally, there has been a significant increase in targets that resemble their short list of top targets.
private equity deal activity focused on AI and GenAI, In fact, one client is training AI on what “successful”
considering rapid growth potential. To avoid being left portfolio companies look like—without defining inputs
behind, industry leaders will need to create or defend or outputs. Instead, the AI has established its own
competitive advantage with new investments in assets, criteria to uncover targets with a higher probability of
data, and AI capabilities. We are already seeing the value capture. Lastly, GenAI is helping clients review and
first signs of disruption across multiple sectors, which summarize critical supplier or customer contracts to
creates opportunities for the disrupters and potentially inform execution, integration, or separation strategies.
significant challenges for the disrupted.
Figure 1 shows the five key stages of the M&A life cycle
As the promise of GenAI becomes more real, new and associated key use cases identified by Deloitte.
entrants will pose competitive threats for incumbents

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

Figure 1: AI and GenAI use cases across the M&A life cycle

Examples of AI and GenAI M&A use cases

• Product portfolio analysis: Assess product mix and recommend growth strategies
• Nested wargaming: Game out competitive moves and counter-moves by a key competitor
Target • (Un)structured data analysis: Automated data extraction and transference of deal financial data into analytics and tools
screening/M&A • Market sensing and analytics in PE: Identify and summarize PE investment thesis, leveraging market research and
strategy & planning
valuation • Deal sourcing/target screening: Identify and prioritize high performing assets for future deals to correlate with investment
strategy
• Valuation global standards chatbot: GenAI Engine that answers valuation questions based on global standards

• Diligence observations/focus: Evaluate financial and operational data to identify key risks
Pre-deal

• Management interview preparation: Prepare management interview guides and additional data requests
• CDD prep and voice of customer execution: Examine target customer segments, preliminary trends
and summarize themes
Due • Functional due diligence (HR, IT, Ops, etc.): Analyze and compare HR practices and policies (e.g., leaves, severance)
diligence • Culture diligence: Use public data sources to gather information on the target company’s culture
• Management EBITDA drafting: Create management adjusted EBITDA build and draft description of adjustments
• Report tie-out: Compare draft report with finance workbook schedules, and note where values do not reconcile
• Working capital optimization: Generate insights about payment terms for customer/vendors and working capital

Negotiations & • Term sheet analysis: Analyze and summarize key agreement and financing terms
deal structure • Deal closing conditions: Draft Day 1 criteria and closing conditions based on sell-and buy-side objective

• Blueprinting, Day 1 checklists, TSAs: Automate operating model designs and draft of Day 1 planning deliverables
• Benchmarking analysis: Prepare benchmarking of financial and operational KPIs
• IT landscape analytics: Generate summary of comparison between seller and buyer applications, infrastructure and IT
Post-deal services
planning & • Contract analysis: Encapsulate key terms in contracts for contract harmonization
execution • Day 1 communications: Generate Day 1 communications (e.g., deal announcements, stakeholder FAQs, and social media
posts)
Post-deal

• Culture analysis: Synthesize survey and focus group data and recommend actionable steps to address culture differences
• Chatbot for Day 1 support: Leverage GenAI chatbot to answer questions related to deal and Day 1 readiness

• Synergy assessment: Quantify operational and financial synergies through transformation initiatives
Restructuring &
• Value creation and synergies: Analyze value creation levers, and prioritize cost savings initiatives
transformation
• Critical path management: Develop and track critical path for transformation and value realization

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

While much of the focus has been on the earlier stages As summarized in figure 2, the degree of readiness,
of the life cycle, companies will build on early learnings value potential, stakeholder engagement, and security
and apply those learnings to reduce the risk and reaches its greatest strength at various parts of the
increase the value during downstream M&A activities. M&A life cycle.

Figure 2: Focus areas for GenAI in M&A based on Deloitte’s sponsored survey of M&A executives

Target Initial Detailed Integration/

identification assessment due diligence separation planning

Lower readiness
Market
readiness
Higher readiness

Lower value
creation potential
M&A value
potential
Higher value
creation potential

Limited stakeholder
engagement
Stakeholder
engagement
Extensive stakeholder
engagement

Lower security
concern
Security

Higher security
concern

Early developments in GenAI have created a higher readiness in early M&A life cycle use
cases. While there may be higher value creation potential in later life cycle use cases,
there are also additional considerations with stakeholder engagement and security.

Note: Figure 2 includes responses from a brief study conducted with M&A executives across industries.

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

The costs, risks, and rewards of building and executing The question is not whether GenAI will affect M&A, but
GenAI use cases are still taking shape. But the instances rather at what pace? The technology’s potential to recast
that produce meaningful return on investment in the look and feel of dealmaking is significant, but several
the form of better insights, increased productivity, challenging headwinds must be navigated to bring that
and accelerated execution will emerge as real potential to fruition.
differentiators—and likely pave the way for applications
later in the M&A life cycle. GenAI suffers from hallucinations: making incorrect
inferences from its source data that may seem
3. GenAI will continue to gain momentum in M&A correct. As with any tool, results and quality must
as early adopters employ it as a key lever to create be validated. GenAI is likely to open a gap and lag in
value from the top line to “heart of the business” understanding and development for the average or early
functions. career employee. Additionally, regulatory and ethical
complexities continue to evolve and at a seemingly
While we anticipate acquisitions of AI- and GenAI-
slower pace than AI. We also see access to or ownership
augmented business will continue to be a focus, we also
of large, high-quality, proprietary data increasing in
see that early experimentation with AI is uncovering
importance as a source of advantage.
opportunities to improve top-line growth, reduce costs,
and minimize execution risk. In fact, a recent Deloitte Perhaps GenAI will come to differentiate M&A winners
survey3 found that 79% of CEOs believe AI will increase from laggards. On the other hand, AI technologies
efficiencies, and 52% believe AI will drive revenue growth may simply become mission-critical capabilities that all
for their enterprises. companies adopt equally—tomorrow’s analog to the
internet or electricity.
As the survey signals, top-line growth is not the only
consideration coming into focus. The associated cost Having sketched the likely developments and the
opportunities and operational benefits are becoming remaining areas of uncertainty, what should an M&A-
clearer as well. Some buyers are already incorporating oriented organization do today to prepare for an AI-
modest cost savings associated with more well-founded fueled future?
use cases such as deploying advanced chatbots to
reduce customer service costs, automating coding and
documentation tasks to lower software development
costs, or even personalizing marketing content while
trimming associated spend.

We anticipate that as buyers gain more experience,

they will likely gain confidence in their ability to estimate
and deliver the impact of these use cases. With that
confidence, they will naturally expand their AI repertoires
to more “heart of the business” functions, such as cost of
goods sold, along with back-office functions such as IT,
finance, HR, and legal.

4. This is only the beginning, and when it comes

to GenAI, winners will be defined by their ability
to navigate early challenges and identify the right
choices needed to win.

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

From strategy to action:

Four steps to take now
Strategy and deal teams that have not yet acted should an enterprise needs, what businesses or capabilities it
consider four moves to inform their strategy. We see no longer needs, and what to acquire or divest based on
each move as a “no regrets” decision that can help that intelligence.
position a company for effective and sustainable growth
Step 3. Identify and invest in experts that can help
in parallel with the AI revolution.
validate and amplify opportunities.
Step 1. Stand up or strengthen sensing capabilities.
As companies pursue AI acquisitions, they will have to
In a world of increasing “unknown unknowns” and identify internal talent or access external expertise, or
accelerating rate of advancement, companies can benefit both, to assess AI and GenAI targets.
by formalizing their approach to sensing.
That expertise will be critical to evaluating the quality of
For example, companies should examine sources the underlying technology and impact to existing assets.
of new potential threats that may arise from GenAI Increasing the level of understanding across business
disruption. Such sources may expand the definition of leaders, including commercial and R&D will be critical
competitors to include smaller, nontraditional entrants to identifying new internal diligence leads and sourcing
and markets beyond existing products and offerings. deals.
New technological developments should be tracked
In tandem, diligence teams will need to build and employ
and “scored” to indicate level and type of impact on
a framework that evaluates the suitability of a target’s
existing businesses or relative attractiveness of new
AI capabilities and its potential as a disrupter or enabler
opportunities. Additionally, insights from secondary
of enterprise strategy. Teams will also need to evaluate
sources should be validated through firsthand knowledge
and quantify future investment needed to enable their
of developments, either via third parties or direct
strategy. This can include detailed software due diligence,
conversations with those who possess knowledge of
including evaluation of source code and data, and
emerging capabilities. Increased awareness will not only
product testing for accuracy of underlying technology.
provide valuable perspective on the current state of play
but should enhance abilities to see where things may Step 4. Prioritize and test M&A AI use cases.
go in the future and better position companies to make
smarter bets earlier. Planning can only take you so far, and we believe that
“learning by testing” is critical in this early stage of new
Step 2. Recast M&A strategy through an AI lens. technology adoption.
Companies should reexamine their industry structures Companies should leverage a cross-functional team’s
and reimagine their business models through an AI lens. perspective to assist with prioritization of AI and GenAI
use cases. Regarding prioritization, teams should
The first consideration is to understand and challenge
consider evaluation of use cases based on their customer
existing assumptions that the industry will operate in
value, business impact, feasibility, and investment needs.
the future as it does today. The second consideration
Teams will also need to establish measures of success
involves disaggregating the value chain and pushing on it:
and identify learnings that will help make use cases
Where could AI both disrupt the chain and create shifts in
effective at scale. Lastly and most importantly, teams
power? Lastly, given these dynamics, companies should
should begin to test these use cases and avoid analysis
make deliberate choices in a “where to play and how
paralysis. The key is to get started on the journey and not
to win” strategic choice framework. This approach can
to overthink which foot to make the first step with.
assist with uncovering the specific AI capabilities or data

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

New tools, new rules

AI presents unparalleled capabilities that can super- Deloitte has seen these shifts at work as we advise and
charge productivity, identify value in novel ways, gen- serve our clients during this technological revolution. As
erate rapid insights, and assist with identifying and we have observed these trends and forces firsthand, it
mitigating risks. These capabilities are likely to rapidly seems certain that enterprises across all industries will
change the work we do today and reshape how we think have lessons ahead. They will come from experience,
about M&A. GenAI not only has the potential to change not theory—and those who learn them earliest stand to
M&A from a process standpoint, but to also influence reap the greatest benefits.
the deals we seek, the way we compete, and the sourc-
es of value we identify across the enterprise. Lastly, the
pace of adoption is increasing, and those who wait face
disruption from those who act.

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

Endnotes
1. Gené Teare, “Global startup funding in 2023 clocks in at lowest level in 5 years,” Crunchbase, January 4, 2024.
2. Abhinandan Jain, “2023: The year AI took over investments – What to expect in 2024?,” Alltech Magazine, January 6, 2024.
3. Deloitte, “The majority of CEOs surveyed believe Generative AI will increase their organizations’ efficiencies: ‘Summer 2023 Fortune/Deloitte CEO
Survey’,” press release, July 24, 2023.

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 Artificial intelligence and mergers and acquisitions: Observations from the frontlines and how to prepare for the coming shift

Authors
Will Engelbrecht Erik Dilger
Principal Managing Director
Deloitte Consulting LLP Deloitte & Touche LLP
wiengelbrecht@deloitte.com edilger@deloitte.com

Jeffrey Canon Sean McKenzie

Managing Director Manager
Deloitte Consulting LLP Deloitte Consulting LLP
jcanon@deloitte.com smckenzie@deloitte.com

Sandeep Dasharath
Senior Manager
Deloitte Consulting LLP
sdasharath@deloitte.com

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