AI’s Impact on Growth Strategies in a Shifting M&A Landscape

September 18, 2023 – The first half of this year saw M&A activity in the U.S. experience a significant decline in dollar value, falling by 41 percent compared to the same period last year. However, the number of deals decreased by only five percent, according to Korn Ferry’s recent report, “What Happened to Big Deals?”

This trend reflects the wider global M&A landscape, where the dollar value of deals dropped by 38 percent, while deal volume decreased by just nine percent, the report found. Although deals are moving forward, the blockbuster moves which anchor the total dollar value of M&A have slowed. And while the M&A environment showed signs of improvement in the second quarter, with a 22 percent increase in activity compared to the first quarter, uncertainties remain, Korn Ferry said.

Alternative Growth Strategies

According to Korn Ferry, one of the world’s largest organizational consultancies, this decrease in M&A deals is prompting firms to explore alternative growth strategies. Companies are focusing on financial discipline, operational efficiency, and productivity improvements. They are also aiming to drive organic growth by retaining and motivating key talent and ensuring effective leadership.

“There’s another place firms can shift their focus to pursue growth,” said Tammy Wang, vice president of data science and machine learning for Korn Ferry digital. “The rise of generative AI as a clear opportunity. Instead of pursuing megadeals, some companies are considering incorporating AI throughout their operations.”

This shift towards AI may require reallocating capital that was previously earmarked for M&A. “There is a lot of money on the sidelines, seemingly waiting to be deployed,” said Mark Arian, CEO of Korn Ferry Consulting. “At a time when M&A has slowed, investment in AI tools may be the perfect redirection of funds that have already been earmarked to pursue growth.”

The relevancy of this potential reevaluation of growth strategy doesn’t seem lost on any with a tech background, according to the Korn Ferry report. “In fact, the man charged with steering the tech strategy of one of Wall Street’s biggest firms is just as excited about the opportunities in AI as everyone else,” the report said.

Related: M&A Activity for Recruiting and Talent Platforms Expected to Heat Up

Marco Argenti, Goldman Sachs’ chief information officer, calls AI “probably one of the biggest revolutions or changes that I have ever seen.” In an interview with Yahoo Finance, Mr. Argenti went on to say: “We believe that AI could be a profound disrupter not only of our industry, but all digital and all information and knowledge industries in general.”

Linking Talent to Value

“In this new world of AI, technology is no longer the back-office,” as Mr. Argenti put it. Investing in AI tools is not only of interest, but of pique importance if one wishes to maintain any competitive advantage. The question then is how this technology can be applied to the human capital space where every talent decision can result in more value, higher growth, better results, and superior returns.

The Hot M&A Market for Executive Search Expected to Continue
Significantly more U.S. chief executives plan to pursue deals compared with their global chief counterparts, according to the newly-released U.S. CEO Outlook survey from EY. A full 63 percent reported they will pursue an M&A deal in the next 12 months, much higher than the 46 percent of CEOs globally who plan to pursue M&A. This fairly robust U.S. number may in part reflect a recent easing in asset valuations as well as pent-up demand.

Private equity firms, which have slowed their deal pace in recent months, are even more likely to pursue an acquisition, with 69 percent of private equity portfolio company CEOs saying they would pursue M&A. Across U.S. sectors, a majority of CEOs in financial services, consumer products and retail, advanced manufacturing and mobility (AM&M), and technology, media, and telecoms (TMT) plan to pursue M&A. Interestingly, joint ventures are very high on the U.S. CEO agenda: 73 percent plan to pursue JVs or strategic alliances, arguably the more recession-proof options.

“Companies are focusing on financial discipline, operational efficiency, and productivity improvements,” the Korn Fery report said. “They are also aiming to drive organic growth by retaining and motivating key talent and ensuring effective leadership.”

Related: Hunt Scanlon Media Launches M&A Advisory Service for Recruiters

The Korn Ferry report also looked into that the effect this technology is having on recruiting. “Generative AI is poised to reshape recruiting in two keyways,” the report said. “First, it can assist in crafting better job requirements by identifying the necessary skills, enhancing both the speed and quality of placements. Second, it enables personalized interactions with candidates, making the application process more tailored and efficient.”

Many RPO providers have already ramped up their investment developing these AI tools, according to Hunt Scanlon Ventures. Firms operating an RPO division may find themselves forced into a defensively acquisitive stance if they don’t invest in these tools now.

“Generative AI can additionally shift the focus in recruiting from credentials like college degrees to a candidate’s actual skills. It excels at sifting through huge amounts of unstructured data,” the Korn Ferry report said. “This will allow recruiters to identify specific capabilities and skills without fixating on traditional qualifications. This will lead to better placements where candidates are more suited to the work, rather than being placed for having gone to the best school.”

While generative AI won’t replace the human touch in reviewing the skills and capabilities of workers, it can simplify the process by providing initial drafts of evaluations, according to the Korn Ferry report. This will help evaluators get a head start on their assessments, enhancing productivity and allowing for deeper conversations during the review process.

“It seems clear that the leadership within firms have a significant role to play in modernizing their organizations and ensuring that generative AI becomes a tool for growth,” the Korn Ferry report said. “If leaders refuse to invest in this groundbreaking technology, their firms will be left behind, while leaders who use the current decline in M&A as an opportunity to pivot and invest in generative AI will likely see great exponential returns.”

Related: Will Hot M&A Recruiting Market Cool and Reset Valuations

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media