M&A in the Age of AI: How Times Have Changed. Or Not.

  • Insight • 
  • 09 November 2023

Gerard Belicha

20 years ago, the idea of hopping into a stranger’s car for a ride, shopping or meeting someone online, or sharing personal moments with the world through pictures would have been met with more than a few raised eyebrows. The digital age has transformed these once-unthinkable actions into everyday norms. Yet, there is a glaring exception in this digital revolution: the world of M&A.

The M&A Paradox: Advanced Technology, Traditional Practices

In the realm of M&A, professionals have readily adopted a suite of technological tools that enhance efficiency and streamline processes. Virtual data rooms, portfolio monitoring and reporting systems, cloud storage solutions, and e-signatures have all been integrated into modern deal-making. Yet, curiously, when it comes to the critical task of deal sourcing, there’s a slavish adherence to old ways.

The Stagnation of Deal Sourcing in a Dynamic World

So why is deal sourcing specifically stuck in the past for some? The data, the tools, and the systems are there to catapult any buyer’s deal-sourcing capabilities firmly into the 21st century. Indeed, with access to over 200 million private companies globally through Finquest alone, the capabilities for deal sourcing have never been more potent.

Yet the reliance on traditional buy-side advisors remains prevalent.

For the avoidance of doubt, I am not taking aim at advisors. While they bring tremendous value at various parts of the deal-making value chain, their continued dominance in deal sourcing, especially in the lower-middle market, is baffling. After all, they neither possess close ties with millions of private companies, nor the advanced AI capabilities to unearth those elusive hidden gems. Instead, they have juniors looking at Google and a handful of self-serve databases with poor private company coverage. The same databases that all your competitors are looking at (and the same companies your competitors are calling too). This approach leaves a lot of opportunity on the table. You only have to take a quick look at the data from our recent white paper, which shows that on average, 40% of the market is never or rarely approached by investors.

Often, the resistance to change stems from a fear of the unknown. The corporate world at large tends to favor the status quo over progress, equating progress and trying something new, with risk.

The Status Quo Bias: A Barrier to Progress

As the old adage goes: you won’t be fired for having bought IBM. Similarly, an M&A or Investment Professional won’t be fired for having relied on tried and true methods – another buy-side advisor, the management team of a portco or subsidiary, and/or used junior resources to scour through the self-serve databases.

A recent encounter with a client in NYC highlighted this conundrum. The client revealed that their advisor, tasked with sourcing deals, failed to introduce new names. Instead, our client actually provided a list of targets to the advisor to call. So despite the advisor being unable to uncover off-market opportunities, the client was still on the hook for the success fee, because they made the initial calls.

And they are not alone. We all know this happens.

This scenario underscores another fundamental flaw in the current model of buy-side advisory. Even if an advisor were able to identify 200 potential targets that are hidden gems, their vested interest lies in limiting introductions to ensure a quicker deal close and, consequently, their success fee. But does this truly serve the best interests of the buyer? The short answer is no.

A Case for Change: Embracing Technology in Deal Sourcing

Conversely, for those forward-thinking professionals who have embraced the use of technology in deal sourcing (many of whom are already our clients), they recognize the need for progress. They understand that efficient capital deployment begins with identifying the most comprehensive universe of potential and actionable targets

To those of you who are on the edge and ready to bring your deal sourcing into the 21st century and join hundreds of your peers who have embraced the idea of using technology, I look forward to hearing from you.

And to those clinging to the past, be forewarned: the hidden gems you overlook today will be the missed opportunities of tomorrow. While your peers capitalize on them, you will face increased pricing competition on those deals seen by all.

In the ever-evolving landscape of M&A, investment, and life, the choice is clear: embrace technology or risk being left behind.


If you’d like to understand what technology can do for your deal sourcing, you can reach me at [email protected]