DEAL activity is expected to pick up in the second half of 2024 as markets emerge from a period of muted volume following record levels in 2021.

Key challenges such as divergent valuation expectations between buyers and sellers, rising interest rates and inflation, as well as global economic uncertainties have been weighing on deal activity over the past two years.

But fresh drivers of growth are emerging amid the uncertainty, pointing to a possible spike in deal activity ahead.

Stephen Bates, partner and head of deal advisory at KPMG in Singapore, observed that near-term drivers for activity include abundant dry powder for deployment and converging valuation expectations.

To capture business opportunities and growing demand, the industry will need to find innovative ways to drive growth, especially with digital technologies revolutionising the industry.

The data-rich environment that is tied closely to business deals is an optimal chance for businesses to maximise the potential that technology can offer.

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He said: “We continue to see the most opportunities in data-rich sectors such as financial services, healthcare, technology, and consumer, where there is so much to gain from using these technologies.”

Transforming skills with innovation

In a highly competitive climate, businesses need to be equipped with the confidence and speed to keep business deals moving and close the transaction quickly.

Speed is one of the key factors in determining the outcome of a deal, and when backed by more accurate and robust data, businesses can make quicker decisions with more confidence.

Bates said: “If harnessed well, we expect that the use of AI (artificial intelligence) will help to transform the deal life cycle into one that is more precise and efficient, increasing the success rate of deals which can be important in securing opportunities in an uncertain macroeconomic environment.”

Citing a few examples, he said AI-powered tools can help in automating a wide range of tasks, from data collection and analysis to risk identification and quantification.

For instance, AI can develop predictive models for business decisions, and insights gathered from these data sets can help with faster quantification of potential value creation opportunities.

In mergers and acquisitions, AI can be used to aid in synergy identification between companies, potentially helping to close the gap between buyers and sellers’ valuation expectations.

AI can also be useful in helping businesses track their risk exposure more accurately, especially in the highly uncertain macroenvironment.

For example, managing risks well can result in better optimisation of capital reserves as real-time risk monitoring allows capital levels to be recalibrated to reduce exposure to unwanted threats.

These examples point to the potential that AI has in generating bigger and more business dealings. But for the benefits to truly be felt, a seamless implementation of AI technology into existing due diligence procedures is required.

“To maximise the potential benefits of using AI, investment professionals will need to be equipped to use and made aware of the AI-powered tools and technologies they can tap on in the course of their work,” Bates said, adding that KPMG has been making significant investments in developing its AI capabilities and infrastructure firm-wide.

Human expertise is indispensable

While AI offers immense potential for the industry, the technology is only as good as the people using it.

“The lesson from the era of digital disruption is that, at its core, identifying and executing deals is ultimately a relationship-driven business. Establishing genuine connections and fostering trust between individuals is what ultimately drives deals forward,” Bates said.

He noted that while AI can help in data gathering, deals are often complex and require in-depth historical knowledge of a particular field or sector.

“This is something that would be difficult for the current technology to replicate with accuracy.

“Instead, data obtained through AI-accelerated due diligence can be combined with on-the-ground knowledge about a particular sector and/or client’s risk tolerance,” he said.

The collaborative intelligence between AI and human capabilities can be a powerful alliance in helping deal-makers navigate the increasingly complex business environment.

“While AI can optimise various aspects of the process, the human element remains paramount. Investing in our workforce’s ability to cultivate and nurture relationships within and outside of our firm is essential for sustained success,” he said.

For example, besides technological training, there is also increasing focus on equipping professionals with soft skills. Such skills are crucial in establishing and maintaining trust, a foundational element of successful deal-making.

Businesses are always on the lookout for new and innovative ways to exceed client expectations. For example, KPMG has been placing more focus on sector-specific strategies.

“Deepening our knowledge and insight within key industries enhances both our ability to effectively navigate the market and execute deals,” Bates said, noting it can demonstrate how professionals are finding tailored solutions to meet the unique needs of clients.

Professionals with sound commercial judgement and well-connected, secure networks within and outside of the industry will still be extremely valuable to clients.

He added: “While AI undoubtedly plays a pivotal role in modernising our profession, it is through the integration of AI and human capabilities that we achieve optimal results. Fostering trust is an extremely crucial aspect in deal-making, and it is only through prioritising relationship-building and investing in our people that we pave the way for continued success.”