Dive Brief:

• Dealmakers believe they will increasingly rely on artificial intelligence for streamlining successful mergers and acquisitions, improving operations and boosting company valuations, Dykema said.
• More than 70% of dealmakers expect that mergers and acquisitions in the next 12 months will target companies that sell AI infrastructure or that either offer AI solutions or have successfully deployed the technology, Dykema found in a survey of 235 executives focused on M&A.
• “AI is no longer a ‘nice-to-have’ — it’s becoming a cornerstone of M&A strategy,” Wilhelm Liebmann, Dykema’s business services director, said in a statement. “Executives see AI not only as a tool for improving operations but also as a differentiator that can enhance business valuations. However, balancing AI's potential with risks like data privacy must be top of mind.”

Dive Insight:

Roughly eight-out-of-10 dealmakers have woven generative AI into their approach to M&A, with nearly half saying their strategy includes buying the technology or related products, KPMG found in a survey.

Two-out-of-five respondents (42%) said their organization aims to use generative AI to improve M&A operations and 21% say they aim to use deals to acquire AI talent, KPMG found in a survey of 200 business leaders who engage in M&A.

The value of deals across a full range of industries in the U.S. hit $535 billion during the first five months of 2024, nearly 30% higher than during the same period last year, with so-called megadeals exceeding $1 billion rising to the highest level since 2019, Dykema said.

Seven out of 10 dealmakers believe the M&A market will pick up pace during the coming 12 months spurred by healthy financial markets, solid economic growth and improved availability of capital, the law firm said.

Company valuations and the line-up of M&A targets have improved compared with last year, according to Dykema, citing its survey. Still, dealmakers said competition among buyers persists as a headwind to transactions.

Forecasting the year when M&A activity will hit a new record “is impossible,” Frank Ballantine, an M&A attorney at Dykema, said in an email reply to questions.

“The institutions and funding and talent and mechanisms are in place for M&A to reach new highs, and the M&A industry is dominated by optimists,” he said. “But when and exactly how new highs will be reached would require an LLM [large language model] that I don’t know of anyone having developed.”

So far this year, AI has spurred dealmaking, Dykema said, noting 55 transactions targeting AI start-ups during the first quarter compared with 38 during the final quarter of last year.

“There is no doubt in my mind that the transformations AI will bring will match or exceed the Industrial Revolution in their scope and power,” Ballantine said. Still, AI companies will need to meet high expectations.

“Investor passion for AI value now is not going to be met in the timeframes of current expectations,” he said.

“The development cycle is created by enthusiastic investors believing in the transformative power of each new thing,” Ballantine said. “But in fact, while the pace of technological transformations has only been accelerating over the past 50 years, it does still take time.”

Moreover, the use of AI in dealmaking poses hazards, Liebmann said.

“It’s crucial to remain vigilant about the new risks AI introduces, such as data privacy concerns and the potential for inaccurate predictions,” he said. “The potential of AI will need to be balanced with careful management in order to leverage AI’s full benefits in dealmaking.”

Dykema surveyed CFOs, CEOs and other senior company officers and executives, as well as bankers, private equity executives and advisors engaged in M&A.