Automating M&A?
Hey Guys,
Read an article about how GS is exploring automation for M&A. Not so much for deal making but perhaps in terms of valuation, content creation etc. What do you guys think about this? Is it possible to occur in the next 5-10 years? Is Automated M&A something that will impact the IBD industry the same way automated trading did for the trading industry?
I could see automation being more widely used, and I could see this affecting the number of analysts needed in large groups in commoditized products within equity and debt. Beyond that, I don't see this replacing analysts and associates anytime soon. The cost of bad quality control in banking is gigantic, plus answering questions that are raised by clients is why you put in all the work.
Certain. Ranks will be culled, and it will be much leaner staff with emphasis on relationship management. Most of the math is illustrative and highly dependent on assumptions, which are fed from the client.
I think the conclusion of the article pretty much sums it up:
"No CEO is going to just use a computer to decide what company they're going to merge with," said one. "The nature of an M&A transaction is much more intimate than that."
Technology could be use useful in easing the grunt-work, but I highly doubt it will be as disruptive/destructive to M&A jobs as it has been to trading.
I agree with what supervalued stated. It will most likely remove the grunt-work related jobs but as well create a few to manage these computer programs.
Yeah but imagine a computer program that you (md) select a company like GE and a list of possible M&A partners shows up and then the md selects a random company from that list and he moves a couple of sliders that structure the deal (20% premium, 75% debt and 25% cash etc) and it spits out a pre-populated pitchbook in less than 3 minutes... I give it less than 4 years at most BB.
On the one hand, you raise an interesting point...on the other hand, you don't do deals just because the math says so. Not sure whether I agree with the above notion or not.
From what I hear I dont see why this hasnt been done yet?
Not to shift in the thread but what're people's thoughts on the effect of automation on the other product groups (ECM/LevFin etc)?
Have a so-called 'strats' buddy. AFAIK a majority of them are geeks in India, LDN and NY, who are exceptionally good at creating new financial products. First time I've heard of them being involved in application development - that's usually handled by the technology teams at GS.
Yes, you're losing your job to some guy named Sanjaya from some IIM who's gonna go all DCF on your ass. He'll be likely working for $50k while your pansy ass gets kicked to the kerb. http://www.leveragedsellout.com/2005/10/outsource-me/
brace yourselves for the shit blizzard of automation
This will happen more slowly than you think. For a few reasons: - Investment banking is the least cookie cutter of any business or operation at most banks. Compare it to S&T, wealth mgmt, consumer, commercial lending, etc. - IB is also one of the smallest of these businesses, which makes it hard to compete for IT dollars - Startups tend to avoid big investment banks, or they quickly learn to. Sales cycles are so long that you can go bankrupt waiting to get paid, even with an amazing product. The addressable market isn't that big. And the compliance/privacy requirements are a rat's nest
I think there's a lot of soft skills that will be hard to replace, but there's also a lot of quantitative stuff that's easy to automate (personally, I'm excited for the day I don't have to build my own models).
IBanking will always be a relationship business, but at the top levels you really have to know what your are talking about when it comes to industry/financials/markets. How do you get that experience?..by going through the analyst and associate ranks. Computer will not simply replace these jobs, however may help to streamline some of the tasks.
I agree with this. You can view tools like Kensho (big announcement recently), Macabacus and LogoIntern as some of the first steps towards automating basic tasks.
Yeah Mappingintern pretty nifty too
Actually had an interesting conversation with our board about this a few weeks ago. I certainly think there are aspects of the M&A process that can and should be automated. But most other components would be done suboptimally by AI and machines; eg deal structuring, negotiations, posturing and other "soft" aspects. In every M&A trade, it always really boils down to which counter party gets the better valuation. The buyer, most generally, wants it lower and seller wants it higher. That often doesn't come down to hard data and numbers. It's often about "leverage" and who's better positioned to win out in a bidding war. You CANT ever punt that to a machine, at least I can't see that happening in my lifetime.
Yes and no, can the excel modeling and pitch book be somewhat automated? Sure, but the problem is you can only automate so much of the process because currently machines can't "think" they can just execute a logic tree. The automation of the data collection and collation can reduce the number of analysts but it still takes someone to analyze what the data means and relay it to other humans.
lawyers
I don't think this applies to middle market / upper middle market M&A (speaking about private companies) where you can't program a database / capIQ or FactSet spreadsheet to pull in all of the relevant numbers and run analysis. A good portion of the analyst work is analyzing and adjusting financials which have variability and inaccuracies that are not as common with public companies. A company with $500 EV or less often have shitty data and inconsistent accounting as you look back three or four years and try to get a sense for the growth profile.
This. The cost of fixing inevitable errors resulting from attempted automation in this scenario - which may irreparably damage a bank's reputation - would be enormous. No one with half a brain would ever take that risk.
In addition, even if there was some sort of way to automate a significant portion of the deal process (assumption here being that said automation is not simply restricted to eliminating low-level, menial grunt work), I guarantee you that a market would quickly emerge with banks positioning themselves in opposition to such measures in an attempt to drain business from banks perceived to be taking “short-cuts” via such automation. Successfully closing M&A deals is highly dependent on the relationships between all parties involved, and I’d venture to bet that a huge portion of potential clients would shy away from throwing their five-figure monthly retainer at some “automated” sales process.
Agree that when it comes to deal execution the potential cost of screwups outweigh the potential benefits, but automation is coming for some of the shittier pitch-oriented tasks.
Which I think everyone will embrace, because analysts want to spend move of their time on deals, and not on nonsense pitchwork
Pretty sure any analyst will tell you some part of their job can be automated, usually true to an extent
A computer can't sell. Simple as that.
most valuations for M&A are reverse engineered to make an attractive pitch so the M&A associates can make some good commissions
are you idiots seriously still patting yourself on the back as if what you're doing is "science" or something?
Any evidence to support this asinine claim? No anecdotes about the dog-shit bank at which you or your friends are employed, please.
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