Investors will build AI’s impact on telecoms M&A targets into their valuations

14 December 2023 | Transaction support

Charles Murray


2024 will see the investor community assess the impact of AI on potential M&A targets in order to understand growth drivers and forecast efficiency opportunities and risks.

AI will be considered in three ways when sponsors and strategic specialists are considering M&A activity:

  1. What efficiency can AI deliver for the target? Private equity (using leveraged buy-out models) will be focused primarily on efficiency, improving operational performance – and thus EBITDA – to off-set tougher top-line growth in mature businesses. We have already seen AI helping with productivity gains in places like contact centres, although it is not yet ready to replace human agents altogether.
  2. How canAI be used to boost the target's growth agenda? In the IT services sector, which has substantial private equity backing, AI-based bolt-ons will help drive volume. IT services firms will be looking at AI across the service spectrum from AI consulting work to internal efficiency and augmentation of in-house platforms.
  3. Is the target's business model at risk from an AI start-up? Growth capital will be eyeing up pure AI start-ups looking to disrupt an existing business model. There is a lot of activity here, but higher debt costs mean positive EBITDA generation is prioritised over revenue growth. Exit to an existing trade player that is at risk of losing share will become an increasingly appealing option.



Analysys Mason 2024 predictions for the TMT industry
Analysys Mason 2024 predictions for the TMT industry