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Artificial Intelligence to enhance M&A

Will the next member of your M&A team be a robot?  One of the world’s most potentially disruptive technologies is Artificial Intelligence (AI).  Given AI developments in the areas of big data and pattern recognition, it is very likely that AI will increasingly be used in connection with a wide variety of M&A tasks.  This will have a major impact on how mergers and acquisitions deals are done.

Overview of Artificial Intelligence (AI)

The term Artificial Intelligence (AI) is a broad concept that refers to technology that allows machines to carry out tasks that are ordinarily performed by humans.  In order to perform these tasks, AI requires the development of software that allows machines to replicate different elements of the complicated human thinking process.

There are two general types of AI, Narrow AI and General AI.  

Narrow AI refers to the ability of a machine to apply a limited artificial cognitive function to carry out a narrowly defined task.  An example of Narrow AI is the virtual assistant Siri, which is capable of speech recognition and searching for information on the Internet in response to queries.  Other examples of Narrow AI are machines that play chess or Go, which select optimal game decisions from a wide set of mathematically calculated move possibilities.

General AI refers to the ability of machines to carry out more sophisticated reasoning processes and draw conclusions about courses of action which are different from possibilities that have been programmed into their database. In other words, General AI allows machines to not only perform pre-determined responses to a defined set of response triggers but rather to engage in higher-order thinking that involves creativity, innovation and improvisation.  

To provide an example of the difference between Narrow AI and General AI, with Narrow AI, an autonomous car with a driving scenario database that contains examples of cars stopping at stop signs would stop the next time a stop sign was encountered.  With General AI, an autonomous car would be able to reason that it should not stop at a stop sign if conditions made stopping particularly hazardous. Machines are still far away from exhibiting General AI.

AI and Mergers & Acquisitions

AI will very likely soon have a significant impact on M&A.  To begin with, the preliminary application of AI will likely be to assist companies and financial analysts with gathering and processing information that can be used to make different types of M&A-related decisions.  While humans can, of course, execute these tasks, AI-supported machines will be able to carry out these activities continuously, much faster and have far better recollections of search results. 

Focusing on specific areas of the M&A process, AI can transform the activity as follows:

1. Market and Sector Data Extraction. To provide one type of example, machines could extract economic or sector data in real time which would allow firms to have a much more detailed and nuanced view of the business realities within a country or sector.  This will be advantageous because companies often make investment decisions based on market perceptions or biases that do not reflect actual market realities which causes them to miss opportunities or assume unwanted risks.

Armed with this knowledge a company could develop stronger M&A strategies and more sensible transaction timetables.  In addition to obtaining information regarding one country, machines could gather information about multiple markets and sectors and compare them to identify acquisition opportunities that likely offer the best ROI or risk-adjusted returns.

“ AI could gather information about multiple markets and sectors and compare them to identify acquisition opportunities that likely offer the best ROI.

2. Company Selection. Once a general M&A strategy has been developed, AI could be used to identify potential M&A targets and track information about them or information that affects their business models.   For example, for an acquirer that was targeting the acquisition of a real estate company, AI could be used to gather several types of data which would allow the attractiveness of the acquisition opportunity to be analyzed, such as macroeconomic data, interest rates, property prices and company information. This would allow for a more sophisticated, multi-dimensional view of targets and how they react to surrounding business and economic conditions.

3. Due Diligence.  The evaluation of M&A opportunities is often accompanied by extensive due diligence regarding the business environment in which a company operates in, the company and its competitors. AI will allow acquirers to develop increasingly sophisticated models of due diligence where the work of advisors such as bankers, lawyers and accountants is accompanied by various types of AI-assisted search queries.  Machines will also likely be able to detect discrepancies between target narratives of either past of probable future event and past or likely future realities which can become the basis for further due diligence questions and analysis.

4. Business Valuation. Another way in which AI could be used to support the M&A activity is in the area of valuation. With the market method of valuation, different types of multiples, such as an EBITDA multiple, are extracted from the market and then applied to the financial performance of the target company to arrive at a company valuation.

In connection with the market valuation method, AI could be used, first of all, to extract in real time EBITDA and public share price data to create a live database of EBITDA multiples. In addition to this baseline EBITDA multiple information, AI could also be used to create individualized valuation adjustment formulas that were based on certain criteria, such as the size of the company or larger company sector trends to arrive at better valuation calculations.  

A second valuation approach is DCF analysis, in which the future free cash flows of a company are calculated and then discounted by a discount factor which in theory reflects the risks that are related to those cash flows.  AI could assist with this type of analysis by gathering information on discount factors and risks to a company’s cash flows.

 You may be interested in: How to value a company? The usefulness of the business valuation process. 

5. Add-On Transactions and Exit Strategies. Most M&A strategies involve the contemplation of helping targets to grow or planning for an investment exit. Because of its ability to monitor and calibrate company performance, competitor performance and larger market conditions, AI will be able to help companies better plan post-acquisition steps.
The application of General AI to M&A is much farther off, but if machines are able to learn higher forms of human reasoning they likely will be able to play a major role in developing M&A strategy, forming due diligence queries based on factual analysis and even in the psychological analysis of management teams.


Advances in AI will allow machines to access and analyze exponentially increasing data about economies, markets, companies and companies’ consumers. This ability will assist companies and financial analysts with gathering and processing information that can be used to make different types of M&A related decisions, making core business processes faster, more efficient and accurate. Some of the most impactful foreseen areas of improvement will be in market and sector data extraction, company selection, due diligence, business valuation, add-on transactions and exit strategies. As the depth and complexity of AI grow, so does the range of its application use in vital business processes.

The photo for this article was taken by Franck V on Unsplash.

Agriculture Projects and Crowdfunding

Agriculture Projects and Crowdfunding

To meet the challenge of feeding a growing world in the face of strained food production resources, climate volatility and massive urbanization trends, it is necessary to link more capital with agriculture projects. One emerging financing trend that has the ability to significantly broaden the base of the agriculture sector investment pyramid is crowdfunding.

Through crowdfunding it is possible for agriculture project sponsors to directly reach large numbers of individual investors, broadening a project’s capital structure and experimenting with more creative investment terms and conditions.

While crowdfunding has great potential, agriculture companies as well as investors considering this financing option should not lose sight of the basic considerations that apply to other forms of investments, including what the relationship between the company and an investor will be, investment risk and return and the need to match capital investment and repayment cycles with the underlying business realities of a particular project.

The article provides a brief overview of crowdfunding, looks at the use of crowdfunding in the agriculture sector and considers the potential of agriculture sector crowdfunding in the future.

Overview of Crowdfunding

Crowdfunding is a technique for financing business, artistic or other projects and initiatives by pooling often small amounts of capital from a large number of people, in many cases through fundraising platforms that are set up on the Internet.

Crowdfunding can be structured in different ways and imply different obligations and rights for the promoters of projects, the platforms over which fund raising efforts are carried out and investors. The following are some commonly used crowdfunding structures:

Equity. In an equity crowdfunding structure, in exchange for an investment, an investor receives an equity interest in the venture funded. The terms and conditions of the equity investment generally vary on a case-by-case basis.

Debt. In a debt crowdfunding structure, capital from individual investors is pooled and then lent to a borrower. Key terms and conditions of the debt investment are based on the general lending parameters of the platform and the risk profile of the borrower.

Coin. In a coin-based crowdfunding structure, the investor receives a coin or right to receive a coin based on the expectation that a market will be created for the coin in which it can be valued and traded.

Reward. In a reward-based crowdfunding structure, the investor receives some type of reward for his investment. The nature and value of this reward can vary widely.

Donation. In a donation-based crowdfunding structure, donations are made by the investor but the investor does not receive anything in return for his investment.

Crowdfunding has grown in importance as a financing tool. The largest crowdfunding platforms, such as Kickstarter and Indiegogo, have collectively raised billions of dollars in equity financing. It has been estimated that, as early as 2020, the crowdfunding market as a whole could reach US $90 billion.

As the crowdfunding market has grown and demonstrated its viability as a financing option, more and more types of businesses have sought crowdfunding options, including fashion, insurance and real estate.


Crowdfunding and Agriculture Projects

There are now several crowdfunding platforms in the market with an agriculture sector focus. Examples of these platforms include AgFunder, Cropital, the agriculture funding platform of Symbid and Harvest Returns.

Going forward, crowdfunding has the potential to play an important role in the agriculture sector for several reasons. The first reason is that agriculture projects can require a large amount of capital that can exceed the investment thresholds of smaller investors. Crowdfunding can give smaller investors the opportunity to participate in promising agriculture ventures of different sizes and in different parts of the world.

The second reason is that crowdfunded capital has the ability to fill the often large space between debt financing and equity investment. This space exists because the time it takes to arrange equity financing often significantly exceeds what food production cycles require, risk and return mismatches and disconnects that often occur between food production and profitability cycles and investor capital deployment and capital return timing expectations.

Limited access to equity capital, and particularly equity capital at the higher end of the risk spectrum, poses a major challenge to small and medium-sized agriculture companies who need higher risk capital so that they can create cultures of innovation and take healthy risks which can allow them to offer new agriculture solutions, create production efficiencies and significantly build firm value.

A third reason is that many consumers are increasingly concerned about where their food comes from, how it was grown and the food’s quality. Crowdfunding provides opportunities for individual investors and consumers to become more directly involved in earlier stages of the food production cycle. Further, the fact that by definition all food sector investors are also food consumers creates the possibility of paying investment returns not only through capital but also through food products that the farm has produced. This can help to convert producers and consumers from people who are on opposite sides of the food chain to partners.


Issues to Consider in Agriculture Projects

While crowdfunding poses great promise for the agriculture sector as a whole, agriculture companies that are considering crowdfunding as a financing option should keep in mind that, rather that constituting a silver bullet financing solution, crowdfunding for many firms will best be used as a complement to traditional debt and equity financing sources.

Further, while some types of crowdfunding do not require investment funds to be paid back, basic laws of investing economics suggest that no funding source will last for long if it is not based on a reasonably fair exchange of economic value. Accordingly companies should carefully structure capital raises so that they will lead to successful business ventures that ideally create a stage for long-term and mutually beneficial company-investor relationships.

From the investor’s perspective, the ability to invest directly in companies whose investment offerings have not been thoroughly vetted creates real investment risk. Agriculture is a sector with real risks and some companies, due to their teams, business models and commercial arrangements may be significantly better placed to manage these risks than others. Accordingly, investors must be on their guard to thoroughly analyze investment opportunities, and if necessary seek the assistance of third parties in doing so, so that investors clearly understand potential risks and returns.


Crowdfunding is set to become an increasingly important element of agriculture sector finance. This type of funding option has the potential to expand agriculture capital markets, allow agricultural firms to build value more efficiently and involve people more directly in food production.  At the same time, companies as well as investors need to analyze crowdfunding options carefully to make sure they make economic sense, are carefully structured and ideally lead to mutually beneficial investment relationships.

This article was written by Darin Bifani.

Technology-Driven M&A

Technology-Driven M&A

One business trend that will likely gain significant strength in the coming years is technology-driven M&A. These are acquisitions or joint ventures whose fundamental purpose is to create or protect firm value through the acquisition of technology. While the search for technology has always been an M&A strategy, its importance has grown as the pace of technological development has accelerated, the use of technology in our lives has increased and technological disruption of industries has become more common.

Technology-driven M&A transactions have, as with all M&A strategies, potential advantages and disadvantages. On the one hand, they can help companies jump often lengthy innovation curves, rapidly expand into new business areas and maximize the sales potential of products and services. On the other hand, acquiring technology can be very expensive, implementing technology can be challenging and there can be significant uncertainties as to the impact of technology on a business and whether the acquired technology will remain relevant and competitive in the face of other technological developments and market changes.

This article briefly discusses the increasing pace of technological development, provides an overview of three models of technology-driven M&A and looks at some advantages and disadvantages of tech-driven M&A strategies.

The Accelerating Pace of Technological Development

While technological development is by no means a new phenomenon, arguably we are witnessing the greatest acceleration of technological progress and impact of technology on human lives in history. There are four related reasons for this which have combined to create a virtuous cycle of technological progress.

Increased Dissemination of Technological Knowledge. Information about technology and technological development is being disseminated at increasingly rapid rates. Due primarily to the Internet and the explosion of knowledge-sharing economies, it is possible to learn about technological developments, discover how to replicate them and work on ways to improve them faster than ever before. The Internet has gone a long way to convert the world into an open technological laboratory.

Improving Technological Development Finance and Economics. Investment in technology has rapidly increased due to growing global wealth, deeper and more efficient capital markets and the increasing interface between investment capital and technology development. This has been combined with the falling cost of many key building blocks of technological development, such as human labor, access to information, computer-driven research and the cost of technology development-enabling devices such as computers.

Increased Use of Technology. The use of technology in our daily lives has increased. Due to increased Internet penetration rates, the Internet of Things and trends such as technology convergence, our lives are increasingly intertwined with devices, such as cell phones, which rapidly evolve. This has increased technology absorption rates.

Economic Conversion of Technology. Due to increased knowledge about technology demand and immediate access to large amounts of technology users through the Internet, the chances of converting technological development into short-term financial gain have improved. This has created the rise of companies such as Google, who channel large amounts of resources into technology research and technology ventures. The shrinking loop of technology development and economic conversion creates strong incentives for the constant push for new technological applications.

Three Types of Technology-Driven M&A Strategies

The rapid pace of technological development has had a major impact on businesses and how businesses view the path to value creation. As an M&A strategy, the acquisition of the right technology can allow a business to grow at rates that can be significantly in excess of growth strategies that rely on other growth drivers.

There are three key types of technology-driven M&A transactions.

● The first type of technology-driven M&A strategy is used by businesses who are looking to acquire innovation to defend their current business model, strengthen elements of their business or transition into new business areas. One example of this strategy is where a petroleum company seeks to acquire a company with renewable energy technology.

● The second type of technology-driven M&A strategy is utilized by technology companies who have technology at different stages of development but who not have the necessary resources to complete the technological development or who do not have a platform to monetize the technology. This strategy can allow technology companies to shorten product launch cycles, significantly expand their access to potential customers and greatly accelerate their ability to deliver their products and services to those customers.

● The third type of technology-driven M&A strategy is used by financially-driven investors who attempt to use technology to create financial value consistent with their overall investment strategy. Technology can be used with every type of financial M&A strategy, ranging from turnaround strategies to long-term value growth to risk arbitrage.

Advantages and Disadvantages of Technology-Driven M&A Strategies

Technology-driven M&A strategies have advantages and disadvantages. At the company level, the key advantage is the right technology can significantly improve business performance. This, is and of itself, can create a series of positive developments, including increased productivity, profitability and investment.

A second key advantage of technology-driven M&A strategies is that they externalize different parts of the technology development and commercialization phases, which can create overall economic efficiencies. For an industrial group, it can be economically efficient for a large portion of technology development to be carried out by third parties. Similarly, for a technology firm, it can be economically efficient for other parties to develop and maintain the channels necessary to market technology.

On the other hand, technology-driven M&A strategies can pose several challenges. To begin with, acquired technology may not fit precisely with a company’s business model or may be difficult to implement, which can create operational inefficiencies as well as efficiencies.

Second, even if technology fits precisely with a company’s business model and can be readily implemented, technology may become obsolete or markets may shift toward different technological applications, eliminating the benefits of the technology acquired.

Thirdly, because of the uncertainties involved with the integration, implementation and durability of technology, it is extremely challenging to value. Unlike investment funds who might hedge the risks of technological investment by investing in many technology ventures, for a single company a major technological investment may constitute a significant bet of its available business development capital. Furthermore, given the uncertainties of technology investments, financing parties may only underwrite investment in technology at significantly higher costs than more secure CAPEX or other investments, which can put firms under financial pressure, particularly if it will take a long time for technology-driven benefits to be realized.


As the pace of technological development and the integration of technology in our daily lives continues to accelerate, technology-driven M&A will become an increasingly relevant M&A strategy. While this strategy has advantages and disadvantages, it should be carefully considered by companies looking to maximize the potential of their business model and drive overall firm growth.

This article was written by Darin Bifani.

The Coming Agriculture Sector Investment Landscape

Due to the challenges of feeding a rapidly growing world with shrinking arable land and water sources, the agriculture and financial sectors will need to work hand in hand to create new, sustainable food solutions. The drive to meet food supply needs will have a large impact on agriculture sector capital requirements and investment.

We believe the following developments will significantly affect the agriculture sector investment landscape in the coming years. 

Mid-Market Cross-Border Agriculture Sector Investment Activity will Sharply Rise

A large amount of food in the world is produced by small and mid-sized farmers.  These farmers often face many operating difficulties, including inefficient farming practices, lack of capital and limited or no access to markets that can pay the best prices for they food that they produce.

Cross-border investment will allow smaller and mid-sized agricultural businesses to supplement traditional debt finance with more flexible equity capital that will permit them to better withstand financial and production downturns and more quickly reach their agriculture production potential.  This will provide the financial sector with essentially a new class of investment opportunities.

The Agriculture Sector Investment Vertical Will Become More Stratified

The agriculture sector currently represents a collision of large agriculture sector and financial sector factors.  On the agriculture side, the traditional up-stream, mid-stream and down-stream components of the agriculture value chain are being rapidly broken into smaller parts to create production, processing and transportation innovations, efficiencies and risk diversification.

On the financing side, traditional commercial bank debt financing is being rapidly supplemented by capital from new classes of investors who are relatively new to the agriculture sector, such as family offices, private equity funds and pension funds, and who have different investment horizons, objectives and risk thresholds. These investors are bringing not only additional funds but also non-agricultural short and long-term value creation investment strategies to the sector.  This will provide new financial flexibility as well as discipline.

The result of this collision will be that investment strategies and products will become increasingly calibrated with agriculture sector value chain stratification, more efficiently matching capital with vertical-specific needed agriculture sector finance.  This will lead to a broad range of investments that will accelerate agriculture sector value chain stratification further, from development of new types of food, to new processing robotics to the efficient delivery of food to consumers.

Tech/Land/Sales Tie-Ups Will Become More Common

The global agriculture value chain suffers from large input, throughput and output inefficiencies which cause a great loss of potential sector value.  Examples of this are:

–  Often developing countries with large agriculture land holdings lack technology and sales channels to maximize production potential;

–  Companies with developed agriculture technology lack land or sales channels to maximize technological potential; and

– Sellers who have strong sales channels lack appropriate or sufficient product to maximize sales potential.

Because of increasing market transparency, it has become easier to identify and eliminate these  inefficiencies, which should lead to new joint venture models which harness horizontal and vertical synergies. The realization of these synergies will create real financial gains that can be either passed through to consumers or recycled back down the agriculture value chain in the form of new investments.

The Agriculture Sector Value Chain Will Increasingly Resemble a Circle Rather Than a Line

While the global international trade network has allowed the agriculture sector value chain to be significantly extended, there is often a significant gap between production strategy and actual food consumption, resulting in significant agriculture production missteps and financial inefficiency.

Going forward the distance between the production and consumption ends of the agriculture sector value chain will increasingly form a circle rather than a highly elongated line, allowing producers to better understand consumer preferences and allowing consumers to better understand more about the food that they consume.  This reformation of the agriculture sector value chain will create many investment opportunities, particularly in processes and entities that can shorten production and consumption gaps.

Combined Energy/Agriculture Projects Will Become More Common

The combination of renewable energy and agriculture is still in its infancy and there are many ways that renewable energy can be used to maximize the value of rather than replace agricultural land, such as through mini-renewable power and bio-mass projects that power specific agriculture activities or provide energy for whole farming operations.

For some agricultural projects, complimentary solar or hydro projects may be used to generate independent revenue streams which can provide additional property financial strength and smooth out production-related revenue volatility.  This will not only open up agriculture projects to a wider investor base but will also increase confidence in yields which should attract further institutional investment capital.

Land Value Monetization Strategies Will Become More Widely Used

A significant obstacle to obtaining equity financing in the agriculture sector, particularly in the mid-market segment, is often that land values are very high but cash flows are low, resulting in the common M&A deal dynamic where investors want to value an agriculture business based on a multiple of cash flows but farmers do not want to sell their businesses at a fraction of what the fixed assets are worth.

There are several ways to overcome this impasse, but one way is to replace traditional buy-sell deal approaches with more flexible transaction structures which better share property operating risk and rewards going forward.  One example of this is the sale-leaseback where a farmer sells land to an investor and subsequently operates the land and makes guaranteed lease payments.  This allows cash-constrained farmers to monetize land values, remain incentivized to manage the property well over a long period of time and gives investors a long term attractive yield.

Agriculture Capital Markets Will Become More Diversified

Many agriculture companies, particularly in the mid-market segment, are not publicly listed, which limits their access to capital. However, individual consumers have increasingly shown an interest in a greater connection with the food that they buy, and this will likely naturally lead to small lot investments in agriculture projects.  Building capital markets products from a food consumption demand rather than a strictly financial perspective would also create wider agriculture market capital channels.

Article written by Darin Bifani, Partner of ONEtoONE Corporate Finance.