Some buyers have already found comfort in the AI craze that swept through the economy in 2023, especially in the domains of large-cap technology and venture capital. However, this technological progress can also serve as a deterrent in the field of mergers and acquisitions (M&A), causing potential deal-makers to pause due to concerns that the target asset may encounter disruptions in the future.
In a CNBC interview, Anu Aiyengar, the global head of M&A at JPMorgan, stated, “In an investment committee meeting [within a private equity firm], you could discuss any company, and I might highlight the possibility of it being displaced by AI down the line.” Many individuals are reluctant to address this issue without first considering its potential ramifications for their businesses, presenting a significant challenge.
Aiyengar mentioned that discussions in various boardrooms often center around the dilemma of whether to proceed with transactions immediately or wait to engage with a party possessing “enhanced capabilities” that are “more cost-effective, superior, or quicker.”
When reflecting on the lasting effects of artificial intelligence, Aiyengar emphasized, “It’s one of those factors that adds to the element of uncertainty.” Uncertainty does not augur well for M&A activities either.
According to LSEG, approximately $2.5 trillion worth of M&A deals have been completed globally this year until October, indicating a 21% decrease compared to the previous year. Following a decline in deal volumes from the peak of 2021, this year’s downturn is from a lower starting point.
“Understand the least and speak the most.”
Aiyengar attributes the subdued M&A activity in 2023 to factors such as the “discrepancy between the price expectations of sellers and the readiness of buyers to pay,” along with other influences like inflation, interest rates, evolving consumer behaviors post-COVID, geopolitical dynamics, upcoming global elections in 2024, and heightened competitive scrutiny.
AI, as per Aiyengar, is another element of the uncertainty puzzle that acquirers must consider when evaluating a transaction.
She highlighted that “AI is the domain where our knowledge is limited, yet it dominates our discussions.”
