February 11, 2025
Due Diligence: AI Expertise Can Give PE Buyers an Edge
This FTI Consulting article discusses ways that PE firms can use AI to drive value for their portfolio companies. This excerpt addresses how PE firms’ efforts to implement their own AI initiatives can pay dividends when they’re engaging in buy-side due diligence:
On the buy-side, PE firms that have a higher level of AI maturity, either in one of their PortCos or, ideally, have moved from “Decentralized” to “Centralized” AI operating models, will be better positioned to evaluate potential targets. Their own AI use case formation and development and performance in AI initiatives will help them better evaluate the AI readiness or impact of a potential target company.
These PE firms will, simply put, see the AI potential in targets more clearly. For example, a PE firm we worked with evaluated an MSP target with a low AI maturity and identified a potential 10% EBIDTA increase if AI tools were applied. In another case, a PE firm identified a target that had invested in building a data platform that can be readily used as a platform play for enabling AI use cases across this firm’s other portfolio assets and made this factor the cornerstone of their investment theses.
The article also points out that portfolio companies that have already implemented AI based on well-defined use cases and shown evidence of value creation may benefit from an “AI multiplier” when negotiating the price in a sell-side transaction.
– John Jenkins