Recent dealmaking by OpenAI appears to raise an awkward question for mergers and acquisitions advisers: What value do you add?
The ChatGPT developer has relied mainly on in-house teams in negotiating recent commercial partnerships in chip supply and shunned outside advisers, the Financial Times reported last month, citing someone with knowledge of the situation.
It would be tempting for bankers and lawyers to dismiss what Big Tech does as an outlier, just as one might not be too surprised if Unicredit SpA boss Andrea Orcel, a former investment banker himself, relied on an internal team in a takeover approach. Moreover, OpenAI wasn’t doing traditional mergers, acquisitions and disposals.
But some paranoia is surely justified. For starters, OpenAI’s transactions aren’t just commercial deals akin to licensing and development agreements struck in, say, the pharmaceutical industry. They’ve sometimes involved taking stakes or accepting investment — conventional fee opportunities for banks and law firms.
Dealmakers should ask themselves where else they can be disrupted. After all, OpenAI itself already has more than 100 ex-bankers hired through a third-party training ChatGPT to do the work of junior bankers in a project known as Mercury.
Sure, the advisory world benefits to a degree from a moat. Hiring an external adviser is often a regulatory requirement. All the same, it’s clear AI can meddle with certain elements of the transaction chain. Take due diligence on buyout targets by private equity firms. That’s a time-consuming and lucrative activity for corporate law firms that charge by the hour. AI can help private equity partners interrogate the data room themselves, without the expensive legal brains.
Now consider how bankers could traditionally justify their fees from corporations before AI. How much is true value-added? Sharing pieces of industry gossip? Nice to have, but effectively a zero-sum game between the clients. Offering “industry insights”? ChatGPT can deliver scarily impressive analysis of industries right now. And a good CEO really ought to know more than their advisers about the sector in which they’re operating anyway.
As for the process, obtaining live intelligence on what matters to buyers during an asset sale is something where AI will clearly struggle. On the other hand, managing day-to-day relations with investors and analysts looks commoditized. Some protection from investor lawsuits who don’t like your deal? Yes, in the US. But it was always a bit redundant in Europe, which doesn’t have America’s litigious culture.
There are two lucrative needs in M&A that can only be met externally. The first is access to capital to fund really sizeable transactions. That favors the big brokers, who should have an advantage securing advisory roles alongside delivering a tricky financing. A universal bank that can guarantee $20 billion of debt for a mega buyout like Electronic Arts Inc. should be in the tent.
Above all, there’s advice on transactions mired in complexity, say, because they have no relevant precedent, straddle jurisdictions or have a long path to completion crowded with regulatory obstacles. In those situations, the solution to closing the deal is probably not to be found on the internet waiting to be scraped and neatly packaged into bullet points. It’s locked in the heads (and guts) of bankers and lawyers who have experience to draw on and the pattern-recognition capability to turn memories into practical wisdom.
Even if ChatGPT could answer the problems generated by such situations, no sensible CEO would trust the output from a bot. They will go to a trusted human. And they will pay the fees because they're afraid a bad deal will end their career. Relationships are a differentiator between advisers and machines, the strength of them is a differentiator between adviser A and adviser B.
As long as the clients are human, there’ll be a need for human advisers at the very top end of dealmaking. If anything, there’s an increasing premium on judgment — good for those who entered the business several decades ago and remain in the game. Advisers will still need more than a warm bedside manner. They’ll have to convince CEOs they make a difference to the outcome that exceeds their fee.
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