The right approach to incorporating AI into M&A strategy

AI technology can be incorporated into “every part” of dealmaking, or so we’re told.

But, as one astute viewer pointed out in a recent CFO Brew webinar, organizations are likely inundated with shiny AI tools that promise to revolutionize their M&A strategy. CFOs can help their companies avoid becoming victims of purchasing the wrong tools, and consequently wasting precious resources, with the right approach, experts told CFO Brew.

“One of the biggest mistakes that companies make, and I’m sure we are victim to this exact same mistake here at Pega, is you focus too much on activity and you don’t focus on outcomes,” Ken Stillwell, CFO and COO of workflow software platform Pega, said.

While it’s fine to experiment a bit with the technology, “if you really want to look at anchoring AI tools, you should first start with, what is the outcome that you want to change,” Stillwell continued. As others recently confided to Morning Brew, companies are (hopefully) moving on from the “tokenmaxxing” craze.

“Unfortunately, a lot of people are starting with the tool…and it’s almost like ‘I’m going to try to figure out how AI can help me,’” he said. “You’re not going to have a great feeling of reward from what you get if you don’t really know what problem you’re trying to solve.”

Framework makes the ROI work. There’s an “incredible opportunity” to harness AI in dealmaking, so long as organizations have the right framework in place to measure the return they’re getting on those tools, according to Josh Putnam, EY-Parthenon’s global and Americas corporate finance leader.

In an emailed statement to CFO Brew, Putnam recommended that finance leaders tie their AI investments “directly to deal outcomes, including deal acceleration, increased valuation confidence, and faster synergy delivery.” CFOs should take these measurements “at the portfolio level” rather than evaluating tools in isolation, he continued. They should also set “clear baselines” prior to deploying the tools.

“The abundance of tools is actually an incredible opportunity, provided you approach it with the right framework,” Putnam said.

Board members will want to know how deal teams are using both AI technology and good old human intuition to work through deals, Stillwell said. Boards want to hear that the professionals have a methodology in place to assess a deal, and from there how they augment the assessment process with AI. Then the deal team can interpret the output to identify any weak points or things that require follow-up questions, he said.

AI that’s deployed with a solid strategy in place on the front end is “where you get the best outcomes,” Stillwell added.

AI in action. AI tools can create a more efficient M&A process because they’re able to analyze the “tremendous amount of data” attached to a potential deal, Stillwell said. This speeds up everything from evaluating acquisition targets to finalizing agreements.

“It allows us to do…the interpretation of the analysis from AI, as opposed to us just grinding through all of the data, reconciliations, and analysis,” he said.

AI can automate “data ingestion and analysis” during the transaction itself so that deal teams can “rapidly highlight red flags, anomalies, and key terms across thousands of pages of documents,” Putnam wrote, “dramatically compressing the diligence phase.”

Putnam added that AI also has an “incredible impact on synergy modeling and integration planning”—you know, all the hard work that comes after the deal itself closes. This means that “teams can model scenarios with much greater speed and precision.”

These new tools require different skill sets from professionals, Stillwell said. Specifically, deal teams need to know how to interact with the AI agents and interpret the data they’re given.

“I think hiring people who are curious, who are learners, who like to challenge conventional thought, [and] can understand how to interpret information from an AI agent or a model are going to be critical in the future,” he said.