Introduction
The rise of artificial intelligence (AI) is set to create a seismic shift in the way businesses operate, promising to be as transformative as the microprocessor, internet, and mobile phone.
Just as the market trends of digitization and cloud transformation have kept IT consulting firms busy over the past decade, AI is expected to become a constant tailwind for IT services firms in the future.
Implementing AI within companies could lead to cost savings and improvements on par with the introduction of computers, software, and the internet. Consequently, it’s crucial for IT services consultants to be well-positioned for this upcoming shift, as the demand for AI consulting services may develop rapidly.
Preparing for the AI Revolution
The speed at which AI technology is advancing means that IT services firms must be prepared for the rapid growth in demand for AI consulting. For instance, ChatGPT, a cutting-edge AI language model, amassed 1 million users in a matter of 5 days, illustrating the potential for swift growth in this area. To capitalize on this opportunity, companies need to be agile and ready to respond to the burgeoning market.
Many IT services firms have already started building capabilities in AI, machine learning, and data analytics. According to our analysis of the Clutch database, more than 4,000 IT consultants have already listed AI as part of their profiles, positioning themselves for future work.
However, for most companies, AI capabilities will need to be developed through training, hiring or acquired through strategic M&A activities in AI sector. M&A can enable IT services firms to build AI capabilities quickly, gain access to experienced teams, and grow their business practice.
Benefits of M&A in AI
Acquiring AI capabilities
Several leading IT services and consulting companies have already made strategic acquisitions to strengthen their AI capabilities. For example, Deloitte acquired SFL Scientific, a data science consulting firm, to bolster its AI and machine learning capabilities. Similarly, Accenture acquired Albert, an AI-powered marketing services provider, to enhance its marketing and advertising services with AI-driven solutions.
But it’s not just IT consulting firms that are racing to build AI capabilities. Many corporate players are also bringing AI development in-house through strategic M&A activities. For instance, Google acquired DeepMind, an AI research company, to integrate its cutting-edge AI technology into Google products and services.
Diversifying into higher-value-add activities
The rising costs of software development have compressed margins for many IT services firms, prompting many companies to move development offshore. However, AI-powered tools like ChatGPT and Github Copilot can significantly improve productivity, eliminating basic time-consuming tasks, and allowing firms to become more cost-efficient without compromising on quality. By adopting these AI solutions, companies can alleviate some of the pressure from rising development costs and maintain a competitive edge.
As AI takes over basic coding tasks, the demand for simpler, low-margin work may decline. AI tools are already capable of producing HTML code, designing elements, and debugging code. To remain relevant and competitive, business owners need to ensure their service offerings add value beyond what AI programs can provide.
Selective M&A in AI can help companies pivot from lower-margin activities to higher-value services by acquiring businesses with expertise in advanced AI applications and niche areas of the technology landscape.
Enhancing Customer Experience and Value Creation
Artificial intelligence technologies have the potential to significantly improve customer experience and create value for businesses by optimizing processes and automating repetitive tasks. By integrating AI into various aspects of their operations, IT services firms can help their clients streamline decision-making, enhance efficiency, optimize sales & marketing and deliver a more personalized experience to customers.
Navigating Risks and Opportunities in the AI Landscape
As IT services firms explore the AI landscape, it is crucial to conduct a thorough due diligence process before embarking on any deals, especially when engaging in M&A activities. Potential risks may include the compatibility of technologies, the alignment of company cultures, and the ability to maintain key talent after an acquisition. Due diligence processes themselves are to be impacted by artificial intelligence technologies.
In addition, firms should perform an in-depth analysis of the regulatory environment surrounding AI and data analytics, as non-compliance can have serious consequences for both the acquired and acquiring companies.
By carefully performing due diligence, analyzing regulation and employing a well-defined process to evaluate potential opportunities, IT services firms can better position themselves to capitalize on the transformative power of artificial intelligence while minimizing risks.
The rush to implement AI across various industries offers a massive opportunity for IT services firms. A strategic M&A approach can help companies combine access to customers in need of AI transformation with the necessary talent and expertise to stay ahead of the competition. By identifying and acquiring businesses that complement their existing offerings, IT services firms can create a strong foundation for growth in the AI-driven era.
Conclusion
The AI revolution presents a golden opportunity for IT services firms, but swift action is crucial. To capitalize on AI’s transformative potential, companies must adopt AI solutions, both to drive revenue and improve costs. Leveraging strategic M&A to pivot towards higher-value services, and keeping pace with the rapid adoption and development of technology could be one of the solutions.
Navigating the AI Landscape with Aventis Advisors
At Aventis Advisors, we provide M&A advisory services to help founders and buyers navigate the complex landscape of AI and software. We help our clients source the right targets and investors, and close deals successfully. Get in touch with us to see how we can support you in your next deal.
