Unlocking the Power of AI in Today’s M&A Landscape
In the midst of the current artificial intelligence (AI) hype cycle, companies are fiercely competing to gain an advantage in this rapidly evolving sector.
This year, the software M&A market is making a strong comeback, with over 600 deals in the first quarter alone. Larger companies are either investing, partnering, or acquiring smaller, venture-backed firms to enhance their capabilities. While these investments may seem relatively small compared to the vast funds in private equity and corporate reserves, companies are actively seeking opportunities to stay ahead.
Despite this resurgence in M&A activity, the playbook for these deals has transformed significantly.
Companies engaging in mega deals are navigating complex regulatory landscapes in Europe and North America. Leading companies like Microsoft, Brookfield, and Thomson Reuters have shifted to a more nuanced AI-focused strategy, focusing on building, partnering, and acquiring, as highlighted by Steve Hasker, CEO of Thomson Reuters.
Enghouse, Constellation Software, Brookfield, and Thomson Reuters are among the firms investing in or acquiring AI start-ups. For example, Brookfield Growth recently invested in contract lifecycle management firm SirionLabs, while Thomson Reuters acquired Casetext, an AI-powered legal start-up. Similarly, Ramp acquired Cohere.io, showcasing the growing trend of AI-related acquisitions in various industries.
The current AI-driven disruption is reminiscent of the rapid innovation seen during the early-pandemic era. As businesses adapted to lockdowns and remote work, the demand for AI tools surged, leading to increased M&A activity. Today, companies are once again turning to M&A to acquire AI capabilities and stay competitive.
How the New M&A Playbook Boosts Incumbents
AI is revolutionizing traditional incumbents by adding a new dimension to their business strategies. Companies like Microsoft and Google are at the forefront of this transformation with significant investments in AI start-ups. These tech giants are not only accelerating their own AI capabilities but also generating recurring revenues from these start-ups by providing essential resources like cloud services and super-computing power.
By forming partnerships rather than outright acquisitions, incumbents can navigate regulatory challenges more effectively while leveraging innovative technology to strengthen their market positions. Additionally, AI is streamlining the M&A process by optimizing various stages, from deal sourcing to post-merger integration.
As companies embrace this new M&A playbook, AI is proving to be an indispensable tool in driving successful transactions and empowering incumbents to stay ahead in the competitive landscape.
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The views expressed in this post are solely the author’s opinion and should not be considered as investment advice. The opinions expressed do not necessarily reflect the views of CFA Institute or the author’s employer.
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