United States – Corporate and Company Law
In our recent Harvard Business Review article “To
Accelerate Growth, Analyze Your Company Like an Investor,” we
emphasized the importance of conducting comprehensive,
investor-like company analyses to drive growth and value creation.
Building upon that concept, this article delves into the
transformative potential of expert-driven AI for private equity
(PE) due diligence.
As generative AI (GenAI) proliferates, many companies are
throwing caution to the wind by investing with euphoria around the
hottest new technology.
To maximize return on investment and achieve actionable results,
businesses have to apply expertise to build models and interpret
outputs. For private equity due diligence, the incorporation of
expert understanding and operator experience during the building
and training phases results in AI models that are more
comprehensive and more robust. These models are nourished by
higher-quality data, and they provide pattern recognition by
delivering high-impact, sustainable recommendations. Expert
assessment of the output—in the form of the ability to parse
out what is significant, what can be ignored, and what key
information is missing—identifies immediately actionable
insights for preserving—and creating—value. Those
insights are underwritable, and they help firms confidently secure
deal funding.
EXPERT-DRIVEN AI FOR DUE DILIGENCE is instrumental to
delivering a customized offering for private equity firms and
investors.
By taking advantage of both expertise and experience, ongoing
training processes ensure that algorithms get continuously refined,
thereby creating a reinforcement loop that enhances the quality and
relevance of derived insights. If an AI model shares, say, 10
insights and if experts discern that 6 of them are strong and 4 are
weak, then the model can learn from that feedback and improve
output with each retraining. AI based due diligence has already
uncovered insights that consultant teams have not, which in turn
makes experts more productive and insightful. The symbiotic
combination of in-house expertise with an ever-improving AI
component is the cornerstone of expert-driven AI for due
diligence.
Next, we dig deeper into the key benefits and differentiators
that elevate expert-driven AI for private equity due diligence
based on our research and ongoing AI model development.
EXPERT-DRIVEN AI FOR DUE DILIGENCE accelerates analysis,
unlocks broader and deeper insights, and de-risks value creation
plan implementation
An AI model is only as good as its training. GenAI accelerates
processes but does not necessarily improve quality, because without
details on deal theses and key value creation levers, AI output is
limited in scope. Expert-driven AI for due diligence boosts both
the speed of data quality analysis and the speed at which teams can
derive key insights.
An operator approach that finds the why behind a GenAI
model’s findings for due diligence is critical. Experts should
use the output to evaluate company performance and identify
specific opportunities for improvement. From assessing costs and
growth opportunities to reviewing a company’s pricing structure
and technology maturity, expert insight into AI-derived data finds
actions that will work in the real world for a specific market and
business.
Our approach to using GenAI for due diligence results in the
following benefits, which expedite value plan creation
development:
- INSIGHTS BASED ON OPERATOR EXPERTISE
Our AI for due diligence model is designed to harness the
collective expertise of our professionals. The model provides
comprehensive, expert-based perspectives on due diligence with a
holistic view across the business—from operational and
technology opportunities to head count-related and
non-head-count-related savings levers. For instance, GenAI adeptly
categorizes job roles based on our extensive experience across
various titles and functions, ensuring accurate comparisons.
Companies can use the data to arrive at comprehensive assessments
of team costs, strengths, and capabilities relative to those of
competitors, thereby uncovering valuable insights into
organizational efficiency and potential avenues for value
creation.
- INGESTION OF EXTERNAL MARKET DATA TO AMALGAMATE WITH INTERNAL
BENCHMARKING FINDINGS
We combine a deep understanding of external market factors with
internal historical know-how to glean expert-based insights from
the data. Using the insights, we can then adjust value creation
levers and expectations accordingly. For instance, GenAI easily
distills key themes and sentiments from customers, employees, and
other stakeholders such as regulators, investors, and analysts.
Expert analysis then unpacks the why behind sentiment shifts, new
trends, and regional differences. The resulting nuanced
understanding enables companies to link their findings to actions
and risk-remediation strategies—i.e., which features a
product most needs to improve.
- CREATION OF AN ACTIONABLE PLAN
Through our insights and analysis, we develop clear, actionable,
and impactful value creation plans that are ready for execution
from Day One. For example, we recently conducted a
hyper-personalization campaign at a major musical instrument
retailer. We first identified high-potential customers via AI
models that forecast customer churn and future spend patterns. We
then segmented those customers based on prior purchases and expert
opinion. And we then applied GenAI to create tailored email subject
lines and messaging for each segment. By testing AI-created
messages and validating which ones resonated most, we could then
send the most effective messaging to run a targeted marketing
campaign, which delivered a 40% revenue lift compared to
control.
EXPERT-DRIVEN AI FOR DUE DILIGENCE turns insights into
underwritable findings
To make the most of the insights and value derived from
expert-driven AI for due diligence, companies have to create
immediately actionable, underwritable value creation plans.
Underwritable investment theses represent the core of the due
diligence phase. When experts unearth the most-practical
opportunities to improve business performance, companies gain truly
applicable insights that expedite revenue generation and margin
results. And firms can more confidently move to secure deal
funding.
EXPERT-DRIVEN AI FOR DUE DILIGENCE is a difference maker
for the PE industry
Incorporating human expertise at every stage makes GenAI as
impactful as it can be for PE due diligence. Experts must drive the
construction phase by inputting data and prompt requirements to
build the most robust models. Even more important, they have to
analyze output by combining their knowledge base with AI insights
to unlock the most-relevant findings—as well as what models
miss.
By strategically combining the latest, most-advanced GenAI
capabilities with expert-level analysis of the findings, AI models
grow smarter, and experts become more efficient. As a result, the
AI for due diligence process delivers outsized value and
underwritable insights to PE firms.
Download :
Not All AI Is Created Equal: Why Expert-driven AI For Due Diligence
Is The Key To Underwritable Results
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
link
