More companies are merging to gain access to each others’ artificial intelligence tools—and that means finding new ways to make sure they’re not buying vapourware. 

Any entrepreneur hoping to sell their business must now be prepared to have the plumbing of their AI systems scrutinized.

“AI is changing what deals get done,” said Suzanne Kumar, executive vice-president of the global M&A practice at Bain & Company. Acquisitions are on the agenda for a growing number of clients, who are finding that it often costs less to buy an AI business than to build it themselves, she said.

But pricing those deals is a different story.

“When you diligence the impact of AI on an asset, about a quarter of the time people are walking away.” 

PwC expects Canadian M&A volume to be steady during the first half of this year, mirroring last year’s volume of around 619 deals per quarter, as Canadian firms make acquisitions as part of a national push for sovereign control of their data storage, computing power and models. It also expects industries like wealth management to consolidate, as baby boomers hand off their businesses and wealth to new generations and tech-enabled advisors gain market share.

Canadian insurer iA Financial, which bought Richardson Wealth for nearly $600 million last year, is one firm leaning into that trend. Denis Berthiaume, the company’s executive vice-president of strategy and M&A, said Richardson chose iA in part for its technology. The insurer tapped a new chief technology officer two years ago and is working with a former Google executive on an AI push. Berthiaume expects more consolidation in wealth management, since it can be expensive in highly regulated industries to simply build a compliant AI tool, let alone match iA’s investments in agentic AI or quantum computing. 

“You still have some boutique firms [for which] we feel it will be tougher and tougher for them to actually support the investments and technology that is required,” said Berthiaume.

“It becomes a scale game.” 

Law firm Osler has seen a shift over the past year, with AI becoming the central thesis of M&A transactions, instead of just one consideration in the due diligence process. It is seeing more deals where earn-outs—which traditionally peg part of the purchase price to a business’s performance after the deal closes—are tied to usage or output quality of AI tools.

The firm has found that generative AI risks like biased decisions and inaccurate responses can still emerge after the deal. While traditional deal-insurance policies can protect acquirers from misrepresentations during the deal-making process, they often do not cover these types of risks. That leaves a buyer exposed, especially if it doesn’t retain the AI engineers who understand how the system was built and trained.

The due diligence process—when the buyer does a detailed inspection of a potential target—now turns to data licensing much earlier in the process, said Sam Ip, a partner in the firm’s technology practice. Both buyers and sellers are increasingly turning to third-party due diligence companies that specialize in kicking the tires on AI, said Ip.

“I’ve been talking to clients about it. I’ve been talking to the firm about it,” said Ip. “How do you prepare yourself for sale? What are the warts?” 

There’s more to the merger madness than just building bigger warchests or acqui-hiring. AI is also reducing the cost and timeline of M&A deals as companies like Radical Ventures-backed OffDeal speed up due diligence. That’s accelerating the research stage for companies considering M&A, said Brian Etienne, senior director of corporate development at Inovia Capital. 

AI was a “key driver” in the 10 largest software M&A deals in North America last year, according to Inovia. But it is also raising expectations. Companies that aren’t able to clearly articulate their AI value proposition will struggle to secure a premium valuation, according to Inovia’s head of corporate development, Scott Munro. 

“I think it’s causing people to ask a lot more fundamental questions about business models,” said Etienne.

Cameron Percy, partner and managing director of BDO Canada’s M&A and capital markets team, has seen a similar dynamic play out in the manufacturing sector, where well-capitalized companies have snapped up analog rivals and gained major upside by installing advanced technology. Now, generative AI is providing a similar playbook to big professional services companies that are scooping up rivals facing “existential” challenges. While AI might help companies expand on the high-tech end of the market, it’s also increasing the potential to turn around lagging rivals for a profit. 

Despite the due diligence challenges, “the opportunity for buyers,” Percy said, “has almost never been better.”

With files from Murad Hemmadi