M&A for AI Companies: Complete Guide

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Usually, M&A is fairly straightforward. It’s complicated, but the same general tools are used to facilitate a good deal for most businesses. 

However, like practically everything else, AI has sent the AI M&A world into a tailspin. 

AI-oriented businesses simply don’t follow the same rules as other businesses. Their assets and value markers are different, their potential is different, and the traditional model simply does not apply to them as much as it does any business in another field. 

So, how do you handle your M&A needs with an AI company? How do you get a good deal? What do you need to improve to make the business valuable? 

Your M&A experts at Final Ascent are here to help. We’ve been tackling this new area of M&A, and we’re ready to get you ahead of the curve. 

Let’s get started. 

Determine What You’re Selling

M&A covers both sides of the transaction, but we’re going to focus on the seller’s point of view just to prevent reiterating everything to cover both perspectives. The buyer’s perspective is largely just a reversed version of the seller’s point of view. 

First and foremost, you have to determine what you’re actually selling

In AI M&A, the current trend is to sell one of two things: Personnel or AI models. 

Personnel sales are when you sell your company so the buyer can acquire the people you have creating, training, and maintaining your AI model.

Usually, you’re just done at this point, and you’re selling the whole business. However, the buyer is interested in your brain power. 

If you’re selling AI models, you might not be selling the whole business. You might simply sell an AI model you’ve made and then restart with a new design.

AI M&A - selling AI models

In that case, you’re selling the AI itself. The new company will gain that software and be able to use it however they want. They can rename it, repurpose it, or anything else, but they’re not actually buying your company. 

However, it is possible to sell the entire company just because the buyer wants the AI model. 

In fact, if you’re looking to sell so you can retire or move on to other ventures, many buyers will largely be interested in the AI model you used to get the business to where it is. 

Both of those situations present unique challenges. If you’re selling the model, you have to prove it’s worth buying. If your buyers are interested in the brains behind the work, you have to figure out whether a complete sale is possible because simply letting them take employees is permanently damaging. 

Get Your Data in Order

In most situations, buyers of AI businesses are looking for raw data. Most of your buyers who are actively in the AI M&A sphere know that they can take proven data and improve upon it for even more success. Your brand name, brains, and assets are largely just bonuses.

As such, when you start thinking about selling a business, one of your first priorities is to get your data in order

You should have several forms of data to provide to fully cover how the AI model works, the data it has collected while in operation under your control, the results it has provided, and everything else. 

Buyers want data. If you hold back, they might be unimpressed and simply drop the deal.

AI M&A - organizing data

You don’t want to give away all your secrets to every random buyer, but once a buyer is in the agreement phase, you’ll need to provide the cold, hard facts to lock them in and seal the deal. 

You need to start this organization period as soon as you start thinking about selling. It will save time later, and you’ll have more data available to seal the deal. If you don’t start organizing your data early, you’ll get to the transaction phase with barely anything to show.

Your business metrics won’t mean much if the buyer is only interested in acquiring your AI model

Ramping Up Productivity

In any business deal, whether AI-related or not, the state of your business when you go to sell is extremely important. Even if your buyer is mostly looking for your personnel or AI model, the state of your business will count.

It shows the results that those other aspects are producing, and at the end of the day, every business professional wants results. 

Doing this with an AI-related business takes a three-pronged approach. 

1: Increase Profits

Depending on the nature of your AI business, you’ll want to use different methods to increase profits. We’ll use the most common AI use for this example. In an AI encyclopedia, you can ask questions. 

In that case, there isn’t really a product beyond the AI. To increase profits, you’d have to focus on two different approaches. 

First, you’d focus on marketing to get the word out about your AI program. The more users you get, the more money you make and the more a buyer has to pay. 

2: Remove Debts

Beyond increasing profits, you also need to reduce any unnecessary expenses you have. With an AI-based business, you likely have few employees, divisions, and suppliers to worry about. So, your primary debts will probably come down to overhead and debt. 

Overhead costs are going to be there no matter what you do. You’re going to have high bills operating powerful electronics, the space that tech requires will cost you regularly, and, of course, you have to have basic commodities for your employees to utilize. So, there usually aren’t many ways to change that. 

However, when you start looking at selling your business, you might want to consult a selling-a-business checklist to ensure you cover all bases.

Whether you took out loans to get started or get through a rough patch, or you’re paying off payments on new equipment, those things are attached to your business, and they detract from your overall value regardless of the buyer’s intention.

So, you want to take time to pay off those debts and minimize new debts. So, if you have 1 year left on a loan, setting your planned exit date for a year from now isn’t a good idea, In fact, you might want to plan for an exit in two years to allow for eliminating that date and preparing for the sale properly. 

Contact an M&A Advisor

AI businesses are difficult to sell, and you do not want to do it on your own. As such, it is best to consult with M&A advisors and hire a professional broker to handle the deal and help you get the best deal possible. 

Neither of these services is just a middleman. A broker helps you facilitate the transaction itself and prevents costly mistakes or negotiation room bullying. An M&A advisor takes a much broader approach to ensure that the entire process is handled smoothly from start to finish, guiding you through the pre-sale, sale, and post-sale phases. 

They’re trained to do so. You can also make mistakes due to the complex nature of the sale, and that can cost you more than what most people would consider worth the effort. 

Attract and Vet Buyers

This is a common step with selling any business, but with an AI business, you need to be even more careful. 

In a general sense, you are most worried about the potential buyer being able to pay. The most common reason for deals falling through is that the seller wasted time on someone who did not have funds secured, and a few months in, the buyer simply couldn’t buy it. 

You want to prevent that. It not only wastes your time, but it also makes you miss good opportunities. Other buyers will reach out while you’re wasting time on someone who can’t afford the purchase. 

Other concerns are how long it will take for them to receive the funds and be able to use them and, of course, whether or not they have the experience to participate in a transaction properly.

Of course, their experience level is only important to you during the transaction. You don’t have to worry about them maintaining the business outside of your emotional attachment to it. 

However, with AI businesses, you also have to worry about people trying to see your data with no real intent of buying the business. This is a harder thing to determine, but luckily, IP laws prevent you from being powerless if you are conned into exposing your code.

That’s just an unwanted hassle that would have to be dealt with, and it’s a reasonable concern in almost all tech spaces. 

Find a Selling Method

Now, you have a great buyer you’re going to work with, and you have all your data accounted for. You know how much you’re worth, and you’re ready to start the process. What method are you going to use? 

There are various ways to sell any business. 

If you’re publicly traded, you can sell all your stock and be done with it

However, that’s not going to be an option for the average middle-market AI business. 

Instead, you’ll likely need to find a competitor who wants to get a hold of one or more of your assets. Your AI model and the people who made it, maintain it, and help it develop are your main assets. When you go to sell, for this reason, a traditional acquisition typically works most effectively. 

There’s also the seller’s note option. This isn’t common with AI businesses. Since they’re new, passing on a legacy usually isn’t a concern.

However, it is an option. If you have family or employees who want to take over but can’t afford it, a seller’s note that lets them pay you back in profits can help. 

Closing the Deal and Making Post-Sale Plans

Closing the deal is fairly simple once you get it worked out. You sign everything over, pay your tax liability, and go home with a lot of money. However, there’s more to it than that.

Closing a deal for AI M&A

Namely, there are post-sale tasks you need to worry about

Assuming you’re the average middle-market business professional, this is likely the largest earning event of your life, and you’re about to retire. Hopefully, you do it right and live a comfortable life. 

Post-sale planning handles that by looking at what you make from the sale and calculating what you need to survive for the rest of your life with something to spare for your family.

Budgeting, planning investments, downsizing or paying off your home, and other aspects are all considered during post-sale planning unless you’re planning on starting a new business and continuing the cycle.

However, that’s usually something for younger business owners who focus more on the financial gain of flipping businesses rather than selling them for standard reasons. 

Get A Proper M&A Advisor with Start-to-Finish Service

One of the most important things you can do throughout this process is hire an M&A advisor. AI businesses are brand new.

There simply isn’t a lot of prior experience to go off of, and if you’re an AI business owner, you probably haven’t had much experience with the sale of such businesses at all. Most are just getting started with their first AI model, after all. 

As such, you need all the help you can get, especially when it comes to AI M&A. That’s why Final Ascent is here to help.

At Final Ascent, we understand that you’re in a complex situation when you think of selling your AI business. We do our best to make the process as smooth as possible. 

With years of servicing businesses across all industries, we know how to sell a business, and we’ve already handled AI-related cases. 

We stick with you through the entire process. From when you start thinking about selling until you’re planning how to spend the money, we’re by your side and helping you throughout the process. 

If you’re handling M&A with an AI-related business, contact us today.

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