AI will change corporate deal-making forever and firms need to be ready

Key decision making may soon be taken away from humans and guided instead by the application of artificial intelligence (AI) in many stages of a deal process, according to a report from by ICAEW and Drooms, a data solutions company. The ability to predict and shape the long-term success of global takeovers has long been seen as the “holy grail” for CEOs, investors and advisors.

The report, AI in Corporate Advisory, is the first to specifically address the application of AI to corporate deals – which in 2018 involved transactions worth $4 trillion globally.

“AI in Corporate Advisory shows great initiative by ICAEW to bring together all these major organisations. AI, even in its narrow form, will have a profound impact on corporate governance,” said Lord Clement-Jones CBE, Co-Chair of the All-party Parliamentary Group on Artificial Intelligence, who led The Expert Consultative Group which helped inform the report.

“This report is the first in the world to specifically address the application of AI in the context of mergers and acquisitions. Potential benefits include faster, more accurate and more insightful due diligence processes. Professional judgement will become more, not less, important in the age of AI, but in a global AI market dominated by the US and China, countries such as the UK will need to increase public and private investment markedly,” he added.

The report focuses on the opportunities and risks of using AI for those involved in corporate finance transactions, including businesses, investors, advisers, bankers and the wider economy. It explores how AI technologies will augment the existing business models of advisory firms, corporations and consulting groups, allowing organisations to do better due diligence, make better predictions, and guarantee the success of deals.

Speaking at the launch of the report, Tim Gordon, partner at Best Practice AI, warned that AI and data will challenge big firms like never before. He said firms like data-driven companies like Drooms “are positioned to radically transform this industry”.

“If you think about what this means to the big players, they have built industries over decades, based on the economies of scale of people. More and more people can give competitive advantage over somewhere else,” he said.

“If you move to a world where actually it is economies of data that drive the scale… you can begin to see how they will form a competitive advantage which will basically eviscerate some of these big firms, unless they get on with it,” Gordon added.

ICAEW’s Head of Corporate Finance, David Petrie, hoped that the report would help better inform accountants ahead of the huge changes that AI could soon bring.

“Our unique research for AI in Corporate Advisory shows for the first time exactly how these new technologies have the potential to help companies, investors and advisors make even better, more informed decisions about deals. Over the next three years there will be a sea-change in the way global mergers, acquisitions and corporate investment decisions are evaluated and transacted,” Petrie said.

“For professional bodies, such as ICAEW, our role is to ensure that members remain at the cutting edge of the application of these new technologies and that they have the expertise, training and qualifications to make the commercial and ethical judgements vital in the brave new world of AI assisted deal-doing and corporate finance,” he added.

The report also made several recommendations for the implementation of AI, including that:

• Countries such as the UK will need to continue to increase public and private investment sharply, particularly after Brexit, in an extremely competitive global AI market dominated by the US and China. For example, initiatives such as the £20m Next Generation Services pioneer programme should be expanded to act as catalysts for further innovation and private-sector investment.
• Collaboration between professional services firms and technology developers in AI and big data should be stepped up. The global technology companies such as Amazon, Microsoft, Google and IBM are already seeking to shape the way in which AI should work in the professional services industry including via the application of these technologies in accounting and legal services.
• Comprehensive, multi-layered analysis can produce complex results, which require careful interpretation. So, expert professional judgement will become even more, rather than less, important in the age of AI.