Artificial Intelligence (AI) is currently a hot topic, frequently appearing across LinkedIn posts, advertisements, and thought leadership discussions. It's becoming increasingly challenging to encounter a security vendor at forums like the RSA who isn't showcasing their AI capabilities.
This growing reliance on AI extends to the world of Private Equity (PE), where firms are actively seeking to understand and integrate AI into their investment strategies. Our PE clients recognise the potential of AI to not only streamline their own operations but also to significantly boost the performance of their portfolio companies. They come to us with pressing enquiries, eager to grasp the nuances of AI and its implications for their future transactions.
How BDO is looking to employ AI in the PE deals cycle
Our Private Equity (PE) clients are keenly interested in AI, often asking us two critical questions:
When considering an acquisition with an AI component, how should it be evaluated during due diligence?
How can AI be leveraged within my PE firm and across my portfolio companies?
PE firms are unique, they don't just focus on their own operations but also strive to enhance the performance and value of their portfolio companies. This is particularly pertinent in the current climate of rising debt financing, prompting a re-evaluation of value creation strategies.
At their core, PE firms are adept at sifting through vast amounts of data to extract insights and inform decisions—a process not unlike the strengths of AI, which include analysing large datasets to provide valuable insights.
From a due diligence standpoint, our BDO digital team is actively working with clients to deliver our AI model due diligence assessment. This approach is designed to validate and test the AI models of target companies providing insights on the decision cycle of the model, the datasets used and testing the validity of outputs.
More broadly, implementing AI in business is not as simple as flipping a switch. Without understanding the data sources, compliance, and security measures, the risks can be significant. For instance, inputting sensitive data into platforms like ChatGPT without proper safeguards could inadvertently expose it online.
The journey from recognising the potential of AI to successfully integrating it into private equity operations is fraught with challenges and considerations. It's a path that requires a nuanced understanding of not just the technology itself, but also the regulatory environment and the specific needs of the PE sector. The stakes are high, as the misuse of AI can lead to significant reputational, legal, and financial repercussions. It's essential to navigate these waters with a clear vision and a robust framework to mitigate risks and capitalise on the opportunities AI presents.
To address these complexities, our BDO Digital team is preparing a two-part paper, set for release in September 2024, in which we aim to demystify AI's role in the PE sector. It will explore potential opportunities and implications for the deal cycle and value creation. This paper aims to guide PE firms on how to harness AI effectively, outlining the necessary steps involving data, technology, security, and expertise to develop a strategy that reveals untapped potential within their portfolios and deal origination.
To ensure you're at the forefront of AI integration within the PE sector, we invite you to register your interest for the upcoming release of our insightful two-part paper. By doing so, you'll be among the first to receive a copy directly to your inbox in September 2024. This paper is an essential read for any PE firm looking to leverage AI for enhanced deal sourcing, due diligence, and value creation. Link to subscribe
For further information or to discuss how BDO can assist your firm in integrating AI into your business strategy, please contact us. Our team of experts is ready to provide you with tailored advice and support.