Want to have cutting-edge, proprietary AI systems but don't want to put in all that work to build it? Do the next best thing: buy it. And that mentality just might drive a renewed M&A boom in 2024, according to insurance services firm Willis Towers Watson.

"Although dealmakers have expressed reservations about AI, companies are increasingly directing their attention and resources toward AI-based businesses," the report says. “Deal success, however, will also depend on the buyer’s ability to build a culture that supports innovation with AI and its power to enhance the employee experience.”

It's an enticing claim, given that M&A activity has suffered since setting a record in 2021 with over $4.6 trillion in annual deal value. Activity fell 32% in 2022, then another 41% in 2023, as rising interest rates and a shifting economy froze deals, concludes WilmerHale in their latest findings on M&As.

But AI is turning it all around. "The average enterprise that we're talking to is seeing 15-20 potential use cases [for AI] within their company, and that's why we think it's going to be 8-10% of budgets", Dan Ives of Wedbush Securities told CNBC this week.

And as law firms pick up more M&A work, firms themselves are combining. Numbers crunched by Fairfax Associates showed that 48 such mergers were completed in 2023—an increase from the previous year. "It's not that [law] firms are running out of options," Kent Zimmermann, of the consulting firm Zeughauser Group, told Reuters. "It's that firms need to make their way into the world of the possible, weigh their options and pick the ones that will produce the most value."

The Era of Layoffs

2023 was a year of layoffs in the legal world—especially in Silicon Valley, where a sharp decrease in start-up activity and IPOs led to firms trimming staff. Marcie Borgal Shunk, a law firm consultant, told Law.com that layoffs may just be part of business as usual now: “I’ve seen more than one firm expand head count to support a reactive stance, then pull back once a more strategic approach is deployed, including technology, outsourcing and a proactive approach to growing the business; or, to use layoffs as a tool to modernize operations."  But when the site polled associates and other staff about cuts, reasoning was placed between two other factors: "Of those who answered 'yes,' 40% said the reason given for the layoffs was that their firms had overhired during the pandemic and were now over capacity as demand slowed. But in open-ended responses, several respondents were skeptical of that notion. 'Firm is saying we have too much headcount, but we all know this is to ensure partner comp remains unaffected,' one respondent said."

THE VERDICT:

It seems AI is already fueling a huge stock market rally, and gearing up to revolutionize most areas of the economy. Sure, we might only be in the first inning of things, but it seems clear that for firms trying to catch up, mergers and acquisitions may be the fastest, easiest, and cheapest way to do so. Of course, that will fuel plenty of law firms for years to come.