Over the last year, ChatGPT has built a presence in so many areas of our lives – from curating your music playlist to assisting you at work. The generative AI platform, built and maintained by OpenAI, is recognized as a helpful tool with broad application, but are you utilizing it as well as you could be? If you work in M&A, banking, and finance, you can optimize your ChatGPT use in your more tedious tasks. Asking it the right questions in the form of text and formula prompts can save you time, crunch massive amounts of complex data in seconds, and generate the kind of in-depth financial analysis you need to better inform your decisions.
Use the following listicle as a quick step-by-step guide to best practices for using ChatGPT in M&A.
What can I use ChatGPT for?
ChatGPT is useful for any area of financial analysis, including: reporting, trend analysis and forecasting, risk management, investment planning, performance tracking, budgeting, compliance, market analysis, and process optimization.
Keep in mind that ChatGPT generates text and numbers, so it can’t assess or analyze truth or accuracy and may produce results containing errors. Use ChatGPT output as a guideline and check any material results before basing any decisions on your findings or using them in any reports.
Secure Your Data
Before you get started, make sure your data is secure and anonymized since that data will be processed and stored on OpenAI’s servers. Make absolutely sure you’re complying with all data protection regulations you are subject to in your jurisdiction(s), such as GDPR in the EU.
Prepare Your Data
ChatGPT output is only as good as the data you provide. Structure your data properly in tables and spreadsheets so the system can read it correctly. Make sure to remove irrelevant data and label all your data sources.
Be Conversational
The key to getting great results from ChatGPT is creating great prompts. The better your prompt, the closer you’ll get to the accurate and useful answers you need. Prompts for ChatGPT should contain explicit instructions but be conversational.
Assign ChatGPT a Specific Role, Experience, and Education
In M&A deals, it helps to think of ChatGPT as a highly skilled professional consultant with specialized expertise, industry experience, and education level. In your mind, visualize the financial analyst who is perfectly qualified to answer the specialized question or financial information you have. Then craft your text prompt as if that’s who you were asking.
Other roles you might assign to ChatGPT:
- Investment adviser
- Risk manager
- Tax consultant
- Compliance officer
- Corporate treasurer
- Credit analyst
Areas of expertise:
- Investment banking
- Private equity
- Asset management
- Insurance
- FinTech
Start your prompt with phrases like:
- “You are an investment analyst and expert in Mergers & Acquisitions with an MBA in corporate finance… ”
- “Imagine you’re a tax consultant with five years in asset management and a bachelor’s degree in business administration, specializing in finance…”
- “As an experienced compliance officer specializing in FinTech regulation with a PhD in economics…
Narrow and Clearly Define Your Objectives
Define exactly what you’re asking for using the most descriptive and accurate words possible. If you need specific elements for use in a report, include those categories in your prompt.
- “Give me the change in profit margin…”
- “Tell me what the effects of interest rate changes are on [variables]…”
- “What is the valuation of liquidity on…”
- “Identify all the risk factors in the following…”
- “What is the potential cost savings in the following situation:… ”
- “What is the decline in sales…”
- “List the cybersecurity and technology risks…”
- “Create a policy for technology implementation that…”
- “Write an IPO Prospectus…”
Identify Key Figures for Analysis
If you need results to include specific figures, include the exact terminology in your prompt.
- “Please provide the EBITDA margin for…”
- “Give me the debt-equity ratio for…”
- “What is the ROI for the following…”
- “Compare the Customer Acquisition Cost between…”
- “How much working capital does…”
Specify the Timeframe
Don’t overlook the timeframe. Include specific quarters, years, months, and dates to indicate to ChatGPT the period you want it to analyze.
- “Using Q1 and Q2 data, calculate the…”
- “Starting with 2020, provide a 5-year trend analysis for…”
- “… using interest rates from February and March 2022.”
Tell ChatGPT How Specific To Be
Because ChatGPT can analyze so much data so quickly, M&A professionals are using it to get very detailed and specific answers. But it’s also useful for broader generalizations. Guide ChatGPT toward the detail level you want. Include in your prompt how specific you want the answers to be.
- “Please provide a comprehensive summary of…”
- “… in-depth analysis that includes details for every key area.”
- “Please provide a general overview of…”
- “Write a detailed report covering all aspects of…”
Specify the Format
ChatGPT can provide results in many different formats. Specify how you want your report formatted and let it do the rest. If available, specify the audience, as it can help determine the right word choice and tone.
- “… as a 1000-word summary.”
- “… in the form of a table.”
- “… as an infographic.”
- “… across 3 separate presentation slides.”
- “…as an email to the Board of Directors.”
- “… as a general overview for the compliance committee.”
Checklist
To ensure that you’re optimizing your ChatGPT use, revisit this checklist summarizing the steps outlined above. While you may not use them all at the same time, they will help you get the best answers possible.
- Assign ChatGPT a specific role, experience, and education
- Narrowly and clearly define your objectives
- Identify key figures for analysis
- Specify the time frame
- Tell ChatGPT how specific to be
- Specify the format
Combining the elements of this checklist will result in specific, clear prompts such as:
You are a senior investment banker specializing in M&A. Provide a detailed market analysis of the [industry] sector, including recent deal trends, top acquirers, valuation multiples, and regulatory impacts.
Analyze the potential synergies in a merger between [Company A] and [Company B], including cost savings and revenue enhancements.
You are a compliance officer specializing in M&A. Identify key regulatory considerations when advising cross-border transactions.
Sample Prompts
Summarize the latest trends in [industry] M&A activity, including notable deals, valuation trends, and key players.
Analyze the recent private equity investments in the [industry] sector and summarize the key drivers behind these deals.
What are the key macroeconomic indicators that could impact M&A activity in [region] over the next year?
Generate a competitive landscape analysis of the [industry] sector, including major players, recent transactions, and financial performance.
Walk me through a discounted cash flow (DCF) analysis for a company in the [industry] sector, assuming a WACC of X% and a growth rate of Y%.
Provide an LBO model framework for a private equity firm acquiring a [industry] company with [revenue] and [EBITDA].
Draft a compelling investment thesis for a potential acquisition target in the [industry] sector.
You are a managing director preparing a pitchbook. Summarize key data points that should be included in an M&A pitch deck for a sell-side client in the [industry] sector.
You are a seasoned M&A negotiator. Provide strategies for handling valuation gaps in a buy-side negotiation.
Give me a framework for advising a client on whether to pursue an IPO, SPAC merger, or strategic sale.
Provide a framework for assessing the financial health of a distressed retail company before an acquisition.
List the top investment banking conferences and networking events I should attend to maximize deal opportunities.
