Will Chat GPT replace M&A advisors

Given the amount of press coverage on artificial intelligence engine Chat GPT lately, and the people in sectors such as copywriting, law and education who are worrying that it might put them out of a job, it’ll probably come as no surprise that we wanted to look into it as well.

So, we spent some time with it. We asked the AI a number of ‘standard’ questions and asked it to perform processes that are typical of an M&A scenario.

The good news, for those of us who are keen to retain our jobs for the next few years at least, is that when it comes to valuing and selling an agency, the AI has an answer that it falls back on time and again: “you should consult an appropriate advisor or a digital marketing expert who has experience and expertise in valuing (digital) marketing agencies and who understands the specific challenges and opportunities in this industry.”

What did it have to say specifically, you might ask? What questions can it actually answer? That’s where the results were quite interesting.

Can Chat GPT value a company if I provide the revenue and EBITDA details?
Accurate valuation – which, let’s face it, is hard enough for humans – is still beyond it. It uses a range of EBITDA multiples (5-15x) and gives you the min and max estimate based on that, stating that the actual outcome would depend on different factors that an advisor with experience in the industry can assess and then perform the valuation.

Can it provide a comprehensive list of buyers?
Again, no. It provides 10 indicative names (WPP, Publicis, Dentsu, Omnicom, Accenture Interactive, Deloitte Digital, McKinsey, Bain, KPMG & EY) and theorises on how different factors might affect the actual potential buyers. All true, but no surprise that it can’t identify the specific group or agency that might be interested in your company’s particular niche, of say, SEO or martech.

Can Chat GPT provide comparable companies or precedent transactions metrics?
It says, quite accurately, that these metrics are unique to each company and so the system does not provide any.

Is it possible to generate a list of all deals that have taken place in the sector?
Chat GPT doesn’t have access to a database of all deals. Due to confidentiality and the fact that private market information is rarely publicly available, it suggests that the user should reach out to a market research firm (or Google).

Can Chat GPT offer guidance on integration strategy and/or growth strategy?
The answers list the pillars or the steps that someone should consider – “assess and preserve key talent”, “define the new organisational structure” and so on – but only in a generic and theoretical way. It clearly states, wisely, that Chat GPT cannot advise on either type of strategy.

Does it advise on private equity firms as active buyers and give examples of deals?
We received a general overview on why and how PE firms invest. Examples of PE deals in the space provided are:

  • a. KKR in Elite SEM (2021)
  • b. Hellman & Friedman in Merkle (2021)
  • c. Advent International in Publicis Sapient (2020)
  • d. Blackstone in Refinitiv (2019)

These are all, unsurprisingly, deals that made the news. But sadly it lacks the context and detail around if and why PE might be a better buyer than a holding company.

Can Chat GPT offer guidance on advisors?
Again, no surprise that it didn’t go into specifics on which advisors to use. In terms of costs, we received an indicative varied hourly rate, while including the possibility that a flat fee might be charged for market analysis or a business plan.

Can Chat GPT advise on industry outlook / potential threats / client budgeting?
In what seems to be a common thread, there were quite good answers on a theoretical level, with explanatory notes and advice that was as up to date as possible (the cut-off date for the system’s data is end 2021). While it wasn’t possible to use any of the answers as specific guidance, it offers a general overview on what is usually a threat and how client budgeting can affect a company’s revenue.

Overall, what was interesting was that Chat GPT was able to give coherent and logical answers on questions around types of valuation, types of buyers (competitors, PE, strategic and the management team), if working capital is important on a deal etc., but it was on a completely theoretical level.

In terms of feel and experience, it’s currently more like a quicker Google or Investopedia, which spares visitors the time of visiting different websites while looking for an answer. It’s also worth noting that the system can currently support only a finite number of users and usually you cannot access the system at the time you want.

Is it interesting? Absolutely. Does it provide good factual information about the M&A process? It does. But can it replace the bespoke and specific guidance of an advisory firm? Unsurprisingly, no.

So, it looks like Skynet, HAL 9000 and M3GAN won’t be working in marcoms M&A anytime soon. That’s probably for the best.

Jim Houghton

Post by Jim Houghton

Partner at Waypoint Partners

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