AI becomes the new dealmaker for SMEs

It’s not enough to talk about Artificial Intelligence as a tool to improve productivity and free up employees for more creative tasks. 

It’s now part of a suitor’s due diligence when looking for takeover targets, whatever size your business might be. The collapse of early talks between Australia’s two largest oil and gas companies, Woodside and Santos, about a proposed merger shouldn’t cloud the market’s judgement about where M&A activity is going in Australia. It’s going up, for SMEs as well.

After reaching a nadir in 2023 as markets grappled with rising interest rates, stubbornly high inflation and falling consumer confidence, global consultancies are predicting a broad uptick in M&A activity in developed markets.

S&P Global Market Intelligence notes the “potential catalysts” to bring M&A activity off its lows of 2023. PwC suggests the “rise in dealmaking may already have started in some sectors”. Both companies singled out AI as a key megatrend that will resuscitate M&A activity.

A separate report by PwC indicates that Australian small businesses will experience another M&A driver in 2024 and beyond, thanks to the intergenerational transfer of wealth. According to the report, “private family business owners will likely make the most of stabilising economic conditions to prepare their businesses for sale or partial sale.” PwC notes more than one-in-five business owners in Australia are aged over 60.

So a combination of technology innovations and generational factors are leading to a unique uptick in M&A activity in Australia, focussed on SMEs. The question is, how can business owners maximise the opportunity?

Global technology consultancy Gartner has been warning for some months now that AI is at ‘peak inflated expectations’. But there are reliable applications for companies across the economy with a demonstrable ROI that won’t break the bank, but will show potential investors that you’re serious.

The first major advantage AI brings to SMEs is its ability to analyse vast amounts of data quickly and accurately. According to Massachusetts-based Generative AI startup Akkio, which raised US$15 million last year, AI analytics tools give small businesses the ability to process large amounts of data, real-time insights and the ability to make data-driven decisions. With AI-powered analytics tools, businesses can gain insights into customer behaviour, market trends, and operational inefficiencies. 

Meanwhile, the promise that AI could revolutionise customer experience is producing outstanding results. Salesforce has been one of the market leaders when it comes to introducing AI into customer experience. Now former Salesforce chief executive Bret Taylor has founded a whole new startup called Sierra, which seeks to take customer interacting AIs to the next level. Their goal is to allow customers to enter free-form questions and requests into a search-style box, and the AI will be able to understand that request and connect the customer to the transactional system they require.

Finally, AI presents a once-in-a-generation opportunity to revolutionise rote tasks. Whether it’s automating inventory management, scheduling appointments, or further analysing financial data, AI-powered solutions allow small business owners to cut costs. Australian law firm Lander & Rogers has automated numerous legal tasks using Microsoft Copilot and launched their own AI Lab, which will spur development of customised tools and integrate them into their employee workflows.

These are the reasons why AI is coming to dominate the thinking around M&A activity. Whether it’s the largest companies in the world or smallest, the correct application of AI to improve productivity is so immense that it becomes a selection criterion for takeover targets. If you haven’t incorporated it into your business processes, the suitor will look for someone who has.

Further, smaller companies need to look critically at investing in the cloud, rather than alternative server structures. Not only do AI solutions benefit from being partnered with cloud investments, which yield more powerful insights and results, but they’re also more attractive from an M&A perspective.

The main lesson from AI is that it places power in the hands of every business operator and allows owners to enhance the value of their business to make it more attractive to suitors. With M&A activity looking to lift off the canvas in 2024, now is the time for business owners to consider their options.

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