AI Will Transform Corporate Deal-Making

Published  3 MIN READ


Artificial intelligence (AI), or computer systems that can perform tasks normally associated with human intelligence, is rapidly becoming one of the most transformative and widespread general-purpose technologies ever.

It is because of the significance of this phenomenon that Drooms teamed up with the Institute of Chartered Accountants in England and Wales (ICAEW) to publish the world’s first report on the impact of AI on corporate transactions.

A key conclusion from this report, entitled AI in Corporate Advisory, is that decision-making may soon be guided by the application of AI in many stages of a deal process – but expert professional judgement will also become even more important.

Deal origination

For finance professionals in banks, fintechs and corporate treasuries, a key issue highlighted by the report is that the greatest potential for AI in the deal process is in origination, company valuation, due diligence and post-transaction integration and reorganisation of businesses.

An area with particular potential for accelerated development is the AI-based applications used by corporate finance advisers to source potential acquisitions, buy-out targets and potential investors.

Investment banks are already exploring technology to find more ‘buy’ and ‘sell’ signals, including within company reports, in relation to corporate transactions. IBM, for example, has been developing tools to help M&A researchers identify and analyse in great detail potential target companies, while venture capitalists are, apparently, applying AI to start-ups’ analysis.

Contributors to our report said AI could be used to analyse past deals, with particular emphasis on identifying the factors driving success and failure with a view to guide future transactions. However, while some of the underlying technology ‘building blocks’ are in place, they would still need sufficient access to training data to be effective.

The availability of data is a pivotal issue. An even more sophisticated approach would be to understand actual deal outcomes in terms of the characteristics of target companies, but this would require the input of extensive historical data.

Although AI can easily automate transactions, replicating human judgement poses massive challenges that will not be resolved in the short term. Computer algorithms are still a long way from replacing the client relationship management, origination, negotiation, evaluation and professional networks expedited by humans in lead advisory.

Preserving confidence

The technological revolution brought about by AI will require a commensurate response from policymakers, professional bodies, regulators and the industry itself in adapting finance and business practices. Although current regulations are sufficient, professional bodies should examine how to evolve professional principles to incorporate AI and big data.

High standards of professional ethics, governance, qualifications and training to support the adoption of AI should be implemented in order to preserve public confidence and trust.

The evolution of virtual data rooms

The development of virtual data rooms (VDRs) is one of the most significant applications of AI-based technologies in major corporate transactions. These are used to manage and provide controlled online access to the documents required during due diligence.

VDRs have made considerable technological progress and continue to do so. Two decades ago, they were an online version of the physical spaces where access to confidential or sensitive information was provided to relevant parties. They now offer secure online platforms for many aspects of the deal process and automated workflow, such as findings, translations and auto-allocation of documents, and have even progressed to incorporating blockchain technology.

However, while AI can achieve impressive results in specific-use cases, these applications are a long way from displacing professional expertise, helping to inform decision-making with the right detailed analysis. Predictive analytics, which is seen as the ‘holy grail’, for example, could have the biggest impact of all on corporate advisory over the next 10 years but currently it is still only at the beginning of its development. AI has merely scratched the surface in a limited number of applications.

Safeguarding trust

The use of AI in corporate finance creates substantial risk of abuses of people and commercial-related data. As such, the importance of the partnerships between industry and technology firms to ensure data is handled in a transparent and understandable way cannot be emphasised enough. Given that AI is still in the early stage of development, there is a fantastic opportunity to build these partnerships and principles now. The good news is that this is already happening, with algorithms being developed to ensure they match professional ethical values.