Buying AI Capability Without Buying an Integration Problem With EY-Parthenon

[00:00:00] - [Speaker 0]
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[00:00:40] - [Speaker 0]
Well, I recently looked at the Parthenon's CEO Outlook Pulse survey, which found that 48 of CEOs view stronger technology or AI capability as one of the leading factors shaping merger and acquisition strategy. And my guest today will explain why companies are buying capabilities that they cannot build quickly enough. No surprises there. But she will also expand on how AI is changing portfolio and capital allocation decisions and why the people behind the technology could be the most valuable part of any deal. And we will also discuss the danger of buying just because everyone else appears to be buying, which is seldom a sound strategy outside of a supermarket sale.

[00:01:33] - [Speaker 0]
So today, you'll hear what CEOs should ask before signing, how to protect specialist cultures, and why human judgment remains involved when the numbers alone cannot tell the whole story. We got a lot to talk about, a lot of big takeaways, and I'm excited to introduce you to my guest now. So thank you for joining me on the podcast today. Can you tell everyone listening a little about who you are and what you do?

[00:02:02] - [Speaker 1]
Absolutely. So I'm Nadeem Merchantani. I'm the global deputy vice chair and Parthenon global deputy leader for strategy and transactions. And so I play a a leadership role, driving sort of the Parthenon strategy and and how we how we face the market and how we, most importantly, advise our clients and and at work to give our people great experiences. And then more personally, I guess, I do client work, I help organizations make major strategic decisions, oftentimes anchored in growth and and mergers, acquisitions, divestments.

[00:02:39] - [Speaker 1]
And so, really, it's around how companies can reinvent their businesses and create long term value in this ever changing world that we are in.

[00:02:47] - [Speaker 0]
Awesome. Well, thank you so much for sitting down with me today. There's a lot we're gonna get through today. And one of the big reasons I invited you on to join me was having read your latest CEO Outlook poll survey, which suggests merger and acquisition or m and a is increasingly being used as a tool for transformation rather than simply expansion. So tell me more about that, and what's changed in the way that CEOs think about acquisitions?

[00:03:14] - [Speaker 0]
And tell me more about that.

[00:03:15] - [Speaker 1]
Yeah. Absolutely. So so first off, I mean, acquisitions have always been sort of part of a growth strategy of an organization. It was a way to grow bigger, access new markets, introduce new products, new services, And it's always been something that is driving a transformation, typically growth, in a business. And I think what's really fascinating is how AI has really emerged as a catalyst for deal making.

[00:03:41] - [Speaker 1]
And it has flavors of that, but it also has flavors of something that's, I think, a little different. And so in our latest CEO Pulse survey, 40 of CEOs say that enhancing technology or AI capability is one of the most important factors shaping their, m and a strategy. And it's really anchored a little bit around an urgency to build capabilities. But if we double click a little bit on that, it's a little interesting as to sort of why. I think it really does go back to strategy.

[00:04:12] - [Speaker 1]
If we look at companies and we look at sort of the worlds that they're playing into and they're still answering the questions around how do I do I grow, how do I create shareholder value, What's really interesting is how AI is infusing all of those questions. So it's about sort of the clients I serve, the products I take to market, and equally so the enterprise that I need to transform in order to be competitive in this new world that is an AI infused world. And so it's really, I think, synonymous with business strategy and business transformation because I think AI serves as both a catalyst for growth, a catalyst to create capacity and productivity for growth, but equally so enterprise wide transformation. So really interesting dynamic around AI and M and A converging around business strategy and strategy in general.

[00:05:08] - [Speaker 0]
And there are so many big stats in that report. One that particularly stood out was nearly half of the CEO surveyed said that enhancing technology or AI capabilities is now the most important factor that is influencing their acquisition and divestment decisions. So why are companies choosing to buy these capabilities rather than build them internally? Is it is it the speed of technological change not wanting to get left behind, or or is it something else?

[00:05:35] - [Speaker 1]
No. I think you've hit you've hit the nail right on the head there. It is, it certainly is speed. So Yeah. We know it takes a while to build capabilities internally depending on where you start from, of course.

[00:05:46] - [Speaker 1]
But the market or the external capability set in sort of, you know, sort of in places that are really focused and have been focused on AI specifically, but but generally technology innovation specifically, allows you to move faster and leapfrog perhaps a bottoms up build into a state of capability that that is perhaps more mature. And then it's also the ability to scale that impact. And so, you know, you can build you can build capability ground up, but you're not necessarily gonna start with, you know, full fledged scale. And so if you acquire that, perhaps you get both capability and scale that you can build on. And I don't know about you, but I can't keep up with every headline I read in the newspaper about how fast things are changing.

[00:06:30] - [Speaker 1]
Yeah. And so speed is becoming an increasingly important vector, but complexity is also an increasingly important factor. And organizations can't afford to build every capability in in house. And so they oftentimes need to sort of rely on the r and d and the build that has happened outside and then acquire it into the organization. And so I think speed is absolutely one of it, one of the driving factors.

[00:06:56] - [Speaker 1]
But it's also, I think, a mindset change as well. And so if we think that 80% of CEOs will increase AI investment, so that's sort of according to the survey. So m and a is a how answer to that question, in some degree. Not all, but certainly some will be built organically. But it's a it's a how question around how to deploy perhaps at scale, at speed, and acquire what are still scarce resources, frankly, in the marketplace.

[00:07:26] - [Speaker 1]
And and so that is that is a large driver of why m and a is is being sort of considered rather than perhaps what we used to do traditionally in any you know, not just technology wise, but we would build new capabilities organically internally. So so I think it's just it's the reality of a fast moving disrupting world that we're in.

[00:07:46] - [Speaker 0]
Yeah. A 100%. But with 58% of CEOs saying AI is shaping their deal strategy, I'm curious. How are you seeing AI changing the way that those leadership teams decide which businesses to acquire, which assets to sell, and and where to allocate their capital? Is AI involved in that as well?

[00:08:07] - [Speaker 0]
What are you seeing there?

[00:08:08] - [Speaker 1]
Yeah. It's a so, I mean, I think it really does all start with a strategy question. You're right. So what is the business strategy that we're solving for? What are the competitive elements?

[00:08:20] - [Speaker 1]
So are competitors disrupting this market faster than we are? Are are we able to take something that is unique to us, maybe a unique data element, a unique customer experience, or a customer base, etcetera? And and and so and then the question is, will AI change this competitive advantage? Will it allow us to move faster? Or, frankly, does it present a risk?

[00:08:44] - [Speaker 1]
And so to me, it's really changing the way CEOs evaluate strategic value. So rather than just focusing solely on market share, you know, I think they're increasingly prioritizing which are the businesses that actually we have a distinctive right to win and AI is gonna strengthen that moat, or where can differentiated, you know, technology, data, and talent allow us to catch up in a market perhaps where we don't have those natural endowments? And so it's it's a new lens around strategic value. So it's not just market share. It's really around, can we extend our additional, you know, sort of competitive advantage?

[00:09:27] - [Speaker 1]
Then can we frankly transform to gain new competitive advantage? And so I really think that companies are directing capital in that way. So slightly different perhaps portfolio dynamic than historically and, and different drivers around that.

[00:09:44] - [Speaker 0]
And I would imagine there's also a risk that some companies might acquire an AI business or technology platform almost expecting an instant transformation. Of course, it's not as simple as that. So they could discover that integration is far more difficult or a whole heap of other challenges there. So from what you've seen here, what separates the deals that genuinely accelerate transformation from those expensive acquisitions that just struggle to deliver their promised value?

[00:10:12] - [Speaker 1]
Yeah. So we know there's the the very quoted statistic, the true statistic that so much value can be gained or lost if you fail to integrate effectively and thoughtfully. I think that now sort of technology led transactions or, you know, transactions that feature a lot of AI add an element of complexity because you're oftentimes you're you're not only solving for just the transaction, you're trying to find a way to integrate the talent, the capabilities, the assets, the IP, etcetera, into an organization that is also transforming in parallel. And you wanna protect what's unique about what you've acquired, but you want to connect it to, frankly, the broader organization. So I think that integration has always been important in value creation, but never more so.

[00:11:02] - [Speaker 1]
And so to me, it it's really about doing two things. Right? It's preserving the original organization and what makes it unique and makes it, you know, sort of attractive and and and sort of driving strategy, but also finding a place for new and specialist teams and new talent that perhaps it operates and has a different culture, pace, and and and expectation. You know? So preserving that, and we're preserving, you know, sort of a specialist team, for example, because that's really where the value that you've acquired comes in.

[00:11:35] - [Speaker 1]
And so technology is only part of the value. The real value oftentimes is the people behind it. And so it's a different strategy sometimes when you're you're not necessarily buying access to a product, you're not necessarily buying access to to a a particular market. You're really thinking through something that is very different in terms of preserving value in the transaction. So how do you create an environment where the acquiring company is valued for its context and the new acquisition is valued for its specialty?

[00:12:11] - [Speaker 1]
Right? And culture is a really important part of that. It's a it's a strategic asset, not an afterthought in these transactions. And so we would say that you you know, that is where the game can be won or lost, especially when you're bringing together two very different cultures, maybe a start up environment and culture with an institutional culture. And and so our research really, really reinforces this that, you know, you have to really think proactively about integration well before the deal is struck because that's how the game will be won or lost.

[00:12:46] - [Speaker 0]
And we're talking a lot around AI and technology and acquisitions today, but, of course, human talent is often one of the most valuable assets being acquired in technology deals too. So how should CEOs think more about maybe retaining some of those specialist teams and also preserving the culture that made that acquisition attractive in the first place. We've seen so many examples in the past of where that can go wrong, but anything you can share on this on how to get that right?

[00:13:16] - [Speaker 1]
Yeah. I think you've got to I mean, it really anchors into sort of why you're doing the deal and communicating clearly, a communication sort of strategy and proposition that allows employees to see a future wherever they sort of are on the sort of the the company that's acquiring and or the company that's being acquired, a meaningful future within that combined organization. We are better together because we are combining this and that. Right? We're better together because all of the the sort of the company has context.

[00:13:49] - [Speaker 1]
And, you know, you and I both know with, with AI, the more context you give to a prompt, the better the outcome of the prompt. And so the institution that is doing the acquiring is oftentimes the context. And then what you want though is the new technology or the new talent to do its thing and to thrive in that organization. And you have to sort of say, but we're also gonna be able to and be open to all of the new that you're gonna infuse into this organization. And so it's really communicating, you know, sort of the power of of together and why that makes sense, communicating how every employee is gonna thrive in that, you know, sort of new collective.

[00:14:30] - [Speaker 1]
And I would say we we under index on the human element, but trust is really, really important from the beginning. Right? So so building relationships amongst the teams, collaboration opportunities, those are the things those are experiential things as much as communication strategy questions that I think really really change the game in in how organizations can think through this. And this is not about sort of, in my view, it's we're driving to a transformation, and we need both of those elements in order to realize it increasingly so. And so I think that's what you've gotta show people that there's a journey and that there's, you know, sort of a place for everybody, and it's a really exciting future that we're gonna design together when you've got sort of a a sort of a new organization and a and a legacy organization coming together.

[00:15:23] - [Speaker 1]
I there's a phrase that I've used and I've heard clients say. It's like technology may be acquired, but sustainable competitive advantage comes from retaining talent. And that can only be done if you build trust and you create a shared culture focused on the ambition that you're building together.

[00:15:41] - [Speaker 0]
Yeah. 100% with you on that. And elsewhere in your research, it seems to suggest almost every CEO right now is maybe unsurprisingly considering some form of strategic transaction while the vast majority are pursuing or planning enterprise wide transformation. Again, maybe no big surprises there, but I'm curious. Do you think that level of activity could create a danger that companies all start doing deals because they fear being left behind and almost lose sight of the strategic case and lose direction because everyone's just doing the same thing using the same tools.

[00:16:18] - [Speaker 0]
Is there a danger there too, do you think?

[00:16:21] - [Speaker 1]
I mean, I think there is. And I think I I think that generally just because of the pace of change, people feel that there's urgency to act and to respond. Right? It's a it's a little bit like you always feel like you're catching up. I always feel like I'm catching up some days.

[00:16:34] - [Speaker 1]
And, yes, I I do think that market momentum can put pressure on leaders to act, but I also think that based on all of the research and certainly the the governance of boards that, you know, all the CEOs that we speak with are very focused on making deliberate choices and decisions about where to deploy capital and not, you know, responding to or reacting to headlines in the press. Those are good indicators of maybe we have a a decision to make, but it's not necessarily to follow the decisions that everybody else is making. And and I really, you know, I really hear CEOs talking about we want to be bold, we want to be choiceful, and we wanna be deliberate. And I think that, you know, the sophistication of today's CEOs working in this very complex world is really anchoring around what are we choosing and how are we deploying capital. Because the cost of making these choices is high as as we all know.

[00:17:30] - [Speaker 1]
Right? This is a these are not inexpensive times when we think about sort of the compute, needed to transform our businesses and the talent that we need to transform businesses, and we've got complex markets out there. And so there is always that risk, but good leaders and and good boards are are really helping, I think, organizations navigate that. And I do think that we're asking the right questions of our organizations, our CEOs that we work with, and CEOs are frankly asking theirs themselves and and their teams the right questions. Right?

[00:18:04] - [Speaker 1]
So does this strengthen competitive position? Are we doing a me too reaction, or are we doing a deliberate because it's unique to us? Should we build these capabilities to align better with a business transformation agenda and or a future of growth that we believe that we own and want to pursue. I would say all of our research shows that CEOs are becoming, frankly, more disciplined, not less. 82% of CEOs at our survey prioritize sustainable long term growth and a clear pathway to profitability over rapid expansion.

[00:18:39] - [Speaker 1]
So that to me signals they they understand and are very much focused on more selective and disciplined approaches to capital allocation.

[00:18:49] - [Speaker 0]
Yeah. And I think it's just simply amazing. In the last three years, AI has become a tool for analyzing businesses, identifying opportunities, supporting due diligence. And I'm curious as this continues to evolve, how do you see the same technology changing the m and a process itself, and and where do you think human judgment must always, or at least for now, remain firmly in control?

[00:19:14] - [Speaker 1]
Yeah. The one amazing thing is the ability of of AI and technology, frankly, to allow us to ingest and analyze so much more information and data. And so for those of us that believe that there's the science of data should absolutely be front and center around the way that we decision. This is just allowing us capacity to identify opportunities at scale and to support the diligence effort at scale. And I think that's really exciting.

[00:19:46] - [Speaker 1]
But so it's it it is fundamentally changing how deals are executed in the sense that it has the ability to process so much more information, analyze for more information, identify patterns more quickly, help make better informed decisions through the diligence phase, through the sourcing phase. And if I just look at sort of our our own business, SOTI, why Parthenon, we have invested in our AI powered edge platforms for many years, and it's really allowing us to support front end strategic decision making with our clients and to advise them accordingly. But we're bringing all of that together into what we're referring to as OneEdge. So we're gonna launch One Edge, which is a unified integrated platform, which is designed to help clients navigate the full value journey across a transaction. So strategy, transaction, transformation, all anchored in data and analytics.

[00:20:39] - [Speaker 1]
And so, again, that is very much, you know, sort of an exciting pathway. But human insight is absolutely key, and it will remain, I think, a really critical component of any decision. It is how decisions need to be made, you know, sort of at those most critical moments. And, you know, for example, you know, data isn't gonna tell you whether an organization's culture actually is async or or not. It's not gonna tell you whether or not, you know, the risks and and rank those risks in terms of potentially sort of financing risks or externality risks or market risk to the same degree that experience and expertise will will give you.

[00:21:26] - [Speaker 1]
And so as as as deals get done, there's absolutely going to be a place where, you know, sort of human and technology meet to get to better, and that's what I think is really exciting. Right? It's it's an and. It's not an or. Human judgments will absolutely matter.

[00:21:43] - [Speaker 1]
I I massive deals are not gonna get underwritten based on sort of a a tick mark from an AI agent. It's going to be leaders committing to return and to create value. And I think that's exciting because I think we're gonna do that with more information and and and more data points. And so, you know, sort of our clients will tell you that transaction teams, you know, will continue to prioritize business, technology, human, and cultural fit. But those are human judgments, not technological judgments.

[00:22:17] - [Speaker 1]
And so so that's, I think, what's really exciting is that more data is good, more context is human, and trust and judgment will continue to be sort of very much in the world of of human decision making in leaders.

[00:22:32] - [Speaker 0]
Exciting times ahead. And I always try and leave everyone listening with a a few actionable takeaways. So if we have a CEO listening, maybe they're considering an m and a as a shortcut to acquiring AI or digital capabilities. What questions should they ask before signing a deal to ensure that they're buying something that they can genuinely transform the business rather than just simply adding another technology asset into the portfolio? You've you've probably seen a lot of good examples, a few bad ones, but any tips and advice to ensure that they get that right?

[00:23:05] - [Speaker 1]
Absolutely. It's it's such a great question. I think it's it's sort of always coming back to the why. Right? So how does this acquisition help us become a better business, not just a more technologically advanced one, is a good question.

[00:23:18] - [Speaker 1]
Right? Does your organization have the ability to integrate and execute this degree of change across the enterprise in order for you to realize outcomes? Can you retain the talent, scale the capability that you're acquiring, and execute the enterprise transformation that you want? So that's the next one. And then also, it's about choices.

[00:23:44] - [Speaker 1]
So why are we acquiring and, you know, versus not building? And I said at the beginning, to me, those are and answers. Oftentimes, it's not one or the other. And so if the acquisition provides you with acceleration of capabilities at scale or talent that would take you many years to build, it absolutely might be the right investment. But only if you can retain that talent and integrate it, preserve what's unique about it, and influence the larger organization with it and have the larger organization help that acquired talent with context.

[00:24:21] - [Speaker 1]
And, otherwise, if you can't sort of answer yes to the ability to do that, then you risk just having bought a technology asset without an outcome to transformation. And so I think that is really what's what's anchored in our research. Our research tells us that. And so, yes, while 48% of CEOs say that AI capabilities are a key driver of deals, 47%, so almost the equivalent, will say strategic fit is just as important. So it's it's really both of those elements that sort of drive to yes.

[00:24:54] - [Speaker 1]
So, you know, the most successful acquisitions are when those two priorities are really tightly aligned. And, again, it's a business decision, not a technology or tool decision. It's really a business strategy question that you start with.

[00:25:07] - [Speaker 0]
Excellent. I guess a powerful moment to end on. And we have covered so much in our thirty minutes together today, including a lot of the insights and stats from the CEO Outlook Pulse survey. For anyone listening who wanna find out more information about that, find you or your team online, or talk find, more information on anything we talked about today. Where would you like me to point them?

[00:25:30] - [Speaker 1]
Thank you. You can find me personally on LinkedIn where I share my perspectives on on many of these topics. I'd also encourage your listeners to visit ey.com, and you can find, you know, pathways to Parthenon via ey.com and the broader you know, sort of firm. And then, you could follow and Parthenon on LinkedIn for our latest research and insights.

[00:25:52] - [Speaker 0]
Awesome. I'll include links to everything you mentioned. Now to everyone listening over to techtalksnetwork.com, there will be a blog post associated with this episode. All the links will be in there. And please have a look and feedback your experiences, what you've seen work, what you've seen not work so well.

[00:26:09] - [Speaker 0]
We'd love to keep this conversation going. But, Nadine, thank you for starting it today. Really appreciate your time.

[00:26:16] - [Speaker 1]
Thank you very much for having me. Great conversation.

[00:26:19] - [Speaker 0]
Big thank you to Nadine for joining us today, and I think her message should leave leaders with a deceptively simple question. Why are we doing this deal? Acquiring an AI business can provide speed, specialist talent, and and established capability. But ownership alone does not create a guarantee of business value. The buyer must be able to integrate the technology, retain the people who made it valuable in the first place, and give the teams enough freedom to keep doing its best work.

[00:26:56] - [Speaker 0]
And that is a demanding combination, especially when a startup culture meets the processes of a large institution, and both sides believe their calendar system is perfectly reasonable. And I also appreciate Nadine's reminder that AI can process enormous volumes of deal data, but it is that human judgment that must assess trust, leadership chemistry, cultural compatibility, and the wider business risks. So, again, thank you to Nadine for joining me on consulting the future today. You can find her on LinkedIn and all the links that I'll add to the blog post associated to this episode. And over to you if your company acquired an AI capability tomorrow, could it keep the people who created its value?

[00:27:45] - [Speaker 0]
Food for thought. Remember, you can get ahold of me at techtalksnetwork.com, but I've taken up far too much of your time already. If you want to come on and join me here on the consulting the future podcast, let me know. And maybe I'll be talking to you rather than you listening to me next time. Hope to speak with you then.

[00:28:04] - [Speaker 0]
Bye for now.