May 30, 2019
Suppose investors are considering a deal in an unfamiliar segment, and they set out to gain a deeper understanding of its prospects. Normally this would involve extensive time to research, given the multitude of data available publicly today. However, augmented intelligence – a way of using artificial intelligence, where people and machines work together to enhance human skills for particular tasks – is helping dealmakers derive meaningful insights faster and more efficiently.
Not only can investors today quickly gain new understanding into an acquisition target’s employees, but they can also identify prevalent trends and themes obtained from massive amounts of data about its products, services and other offerings. In fact, gathering forward-looking intelligence is considered an important use for artificial intelligence, according to 33% of US business executives surveyed in PwC’s 2019 AI Predictions report.
Augmented intelligence doesn’t replace human intelligence, however. Its aim is to free up human expertise, allowing people to focus instead on other critical areas without getting lost in trying to analyze all the data that exists in today’s environment. This approach both yields more complete insights in less time and further provides a more consistent and data-informed approach to evaluating M&A deals.
Integration meets augmented intelligence
Take integration plans, for example. A cornerstone of a successful deal is having a comprehensive plan that addresses areas such as talent retention, product convergence and other challenges likely to arise as two companies become one. This requires forming a deeper understanding of the organizations’ work cultures, including:
- How employees feel about upper management
- Their autonomy and decision-making authority
- Their philosophy around selling and servicing
- Opportunities and challenges in critical functions, such as R&D / engineering
- How satisfied they are with their pay and perks
- How optimistic they feel about career opportunities
Such insights can take considerable time to research manually through surveys and interviews. Through natural language processing, however, dealmakers can streamline the process, gathering employees’ sentiment to either help confirm what they suspected or learn something new. To build an effective common work culture, dealmakers can also identify what customers and employees believe are compatible or divergent strengths.
How augmented intelligence informs deals
In one recent deal, the acquiring company used augmented intelligence to gather information from online career forums and social media, which helped it develop an integration plan to improve employees’ experiences. That information suggested that even though the acquirer and the startup were in the same industry, they diverged in employee rewards philosophy and management styles.
Customer and employee reviews of the startup demonstrated certain strengths, such as having supportive top management and highly-skilled employees. But it also lacked certain employee benefits, and some felt the organization set unrealistic growth expectations. Employees also wanted a more sustainable work environment with better-defined career paths and performance expectations. From these findings, the acquirer was able to address the issues and re-craft their employee experience approach.
Further, augmented intelligence could prove especially helpful when it comes to cross-sector deals, which drove more than one-third of US corporate M&A in 2018, according to PwC analysis of Thomson Reuters data. These deals present new types of integration challenges given that they involve organizations from widely different industries. Being able to better understand how an acquisition target’s employees perceive a deal could help determine how quickly and to what extent the companies should integrate after the deal closes.
Consider a deal in which a tech giant buys a retailer or an auto company or a healthcare firm. When an acquirer goes into a significantly different industry, we often see the need to form a deeper understanding of the firms’ work cultures and their customers’ sentiment around key products. This helps the acquirer and target determine where they should focus integration efforts, retain key talent and leverage products that customers love.
Augmented intelligence is still nascent, but it has demonstrated its potential across various areas of commerce and is changing the way businesses view certain tasks and functions. That, in turn, changes how potential buyers evaluate M&A targets and prospective partners for other types of deals. Just as emerging technologies are influencing what companies can offer customers and altering business models, the above shows how they can help investors better navigate challenging aspects of a deal. Being able to do that on a consistent basis could help companies capture more value in future deals.
Learn more about technological disruption and deals in the New Deal Frontier.