TL;DR:
- AI’s rapid adoption in 2023 has boosted M&A activity, especially in tech and venture capital.
- However, AI’s potential to disrupt acquired assets has made investors cautious.
- Anu Aiyengar, JPMorgan’s M&A head, highlights how AI-related uncertainties affect investment decisions.
- Global M&A transactions reached $2.5 trillion in 2023, down 21% YoY due to various factors, including AI concerns.
- Aiyengar attributes the decline to a gap between seller price expectations and buyer willingness.
- Other variables impacting M&A include inflation, interest rates, changing consumer behaviors, geopolitics, elections, and antitrust scrutiny.
- AI is a central topic of discussion and concern among deal-makers.
Main AI News:
The surge of AI technology in 2023 has infused enthusiasm into various sectors, particularly in the realm of large-cap tech and venture capital. However, this technological wave comes with a dual-edged sword, as it also raises concerns about potential disruptions in the mergers and acquisitions (M&A) landscape. Investors are increasingly cautious, fearing that the assets they acquire today may be rendered obsolete by AI in the near future.
Anu Aiyengar, the global head of M&A at JPMorgan, emphasized this dilemma during an interview with CNBC. She pointed out that within private equity firms, discussions around potential investments can be stifled by apprehensions about AI-driven disruptions. Aiyengar noted, “You could get into an investment committee meeting and talk about any business, and I could say this is going to get disintermediated by AI, the internet, or something else, and find a reason not to put money to work. A lot of people don’t want to analyze it… and then say, what impact will it have on our business? Pretty hard to answer.”
Consequently, decision-makers in boardrooms worldwide find themselves grappling with a critical question: Is it wise to pursue deals immediately, or should they wait for opportunities that offer “better capabilities” at a potentially lower cost and faster pace? The uncertainty stemming from AI’s ultimate impact on industries adds another layer of complexity to this decision-making process, and uncertainty is rarely a friend to M&A.
As of October this year, the global M&A landscape has seen transactions worth approximately $2.5 trillion, representing a 21% decline compared to the previous year, as reported by LSEG. It’s important to note that this year’s decline builds upon a lower baseline, following a dip in deal volumes in 2022 after the record-setting year of 2021.
Aiyengar attributes the relatively modest M&A activity in 2023 to several factors, including the disparity between seller price expectations and buyer willingness to pay. Additionally, a host of other variables contribute to the uncertainty, such as inflation, fluctuating interest rates, shifts in consumer behaviors post-Covid, geopolitical events, the impending global elections in 2024, and increased antitrust scrutiny.
In this complex landscape, AI emerges as a significant element that buyers must navigate when evaluating potential transactions. Aiyengar aptly describes the situation by stating, “AI is the topic about which we know the least and talk the most.” In an era where AI continues to reshape industries and business landscapes, understanding its implications and harnessing its potential remains a formidable challenge for deal-makers across the globe.
Conclusion:
The surge of AI technology in M&A has led to increased deal-making, particularly in tech and venture capital. However, the fear of AI disruptions is causing hesitation among investors. This, coupled with other uncertainties in the market, has contributed to a decline in global M&A activity. As AI continues to reshape industries, deal-makers must grapple with the challenge of understanding its implications and harnessing its potential in their transactions.
