Pricing the AI Premium in M&A: Integrating Intangible Capital Theory with Contemporary Evidence on AI Capability Valuation
DOI:
https://doi.org/10.56830/WRBA11202505Keywords:
Artificial Intelligence (AI), Intangible Capital, Mergers and Acquisitions (M&A), Valuation, Due Diligence, AI maturityAbstract
This paper examines how a company’s artificial intelligence (AI) capabilities, understood as a form of intangible capital, influence valuation outcomes in mergers and acquisitions. The framework outlines four key diligence features: data infrastructure, model autonomy, auditability, and regulatory readiness.
These relate to the economic factors that drive value, including expected growth, scalability, durability, and risk. The paper shows how these factors lead to specific valuation elements, such as revenue growth and total addressable market (TAM), margins and operating leverage, useful life and reinvestment cycles, and the discount rate and synergy realization probability.
The contribution offers practical guidance and provides professionals a clear way to interpret due diligence findings and evaluate how AI maturity impacts projected cash flows, scalability, asset durability, and the right discount rate. For acquirers, this approach supports more defensible pricing decisions. It clarifies when AI capabilities should warrant a premium and when they may introduce uncertainty or obsolescence risk.
The paper provides applied insights for dealmakers and valuation professionals seeking to evaluate AI-intensive targets using established financial principles.
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