Surveyed private equity executives say generative AI to transform deal screening and due diligence, resulting in greater value creation.

The survey of 251 private equity executives across North America found that:

  • 83% of professionals surveyed feel there is substantial room for improvement in conducting due diligence, including with the help of generative AI.
  • 97% of PE executives see at least some impact from the adoption of AI, generative AI, automation and analytics.
  • 62% anticipate these technologies to fundamentally transform these crucial processes.

Amidst an increasingly competitive private equity market, a new report from Accenture finds that while 90% of private equity executives believe that higher quality due diligence consistently improves value creation planning, most (83%) simultaneously feel there is substantial room for improvement, including with the help of generative AI.

For the report, It's Time to Rethink Private Equity Due Diligence, Accenture surveyed 251 private equity professionals across North America, Europe and Asia, at firms managing at least US$5 billion in assets.

The need for improvement stems from the steep competition in the sector, according to the report. The number of active PE firms has been on the rise, with assets under management up 77% since 2019, alongside a 9% decline in total available assets. On top of that, PE firms are holding on to their cash as they assess these limited investment opportunities. Dry powder—unallocated capital waiting to be invested—is at an all-time high for global buyouts, up 23% in 2023 to US$1.2 trillion.

Key Findings

PE executives say their firms face many challenges while conducting due diligence, including:

  • 44% say there is a lack of quality third-party data, hindering their decision-making
  • 38% believe outcomes of due diligence are compartmentalized and siloed, impacting post-deal integration and synergy realization
  • 33% say they struggle to find the right talent that can execute their value creation plans

A key issue is defaulting to identifying risks instead of also analyzing value creation opportunities:

  • While 40% of executives strive to maintain equal focus on both aspects, more than two-thirds of the rest lean towards scrutinizing red flags rather than post-deal value creation

A majority of those surveyed said finding and extracting value from investments has become more challenging:

  • 75% agree or strongly agree that over the past five years, PE investments have grown more complex (up significantly from 2023 when 50% thought investments were complex)

Generative AI has the potential to help solve these challenges, particularly around deal screening and due diligence:

  • Generative AI could automate up to 30% of due diligence tasks and augment an additional 20%, which would significantly cut the time spent on manual processes.
  • 97% of PE executives see at least some impact from the adoption of AI, generative AI, automation and analytics
  • 62% anticipate these technologies to fundamentally transform these crucial processes

Mergers and acquisitions executives also see value in generative AI, according to a recent report, Reinventing M&A with Generative AI:

  • 70% of M&A executives say generative AI could boost expected returns on their transactions and 64% expect it to revolutionize M&A deal processes more than other recent technological advances
  • The report also found that M&A executives show bias toward making more generative AI investments in pre-deal activities

Why It Matters

"In the current environment, finding deals that meet investment targets are harder to come by, but private equity firms still need to deliver superior returns that meet their fiduciary responsibilities," said Jay Scanlan, global private equity lead and senior managing director at Accenture. "To do this, PE firms need to be more strategic. Our research shows that pre-deal due diligence has room for major improvements that would lead to value creation—not to mention, it's crucial to have a clear vision for the target company before finalizing the deal if you want to have a successful investment outcome."

"When it comes to improving due diligence, we believe that AI and generative AI will be game changers for private equity firms looking to create more value in terms of helping to identify targets, accelerating due diligence and also in value creation," said Rachel Barton, global strategy lead for private equity and senior managing director at Accenture. "Firms need to simultaneously balance identifying risks and value creation opportunities during due diligence. Doing both will influence the strategic direction PE firms take post-acquisition, which in turn will weigh on what actions will help boost revenue or expand growth, and ultimately, capitalize on the true value of the deal."

"We expect more than 40% of working hours to be impacted by generative AI, and dealmakers have told us they see the potential for generative AI to help streamline and improve value in M&A. But right now, they're lacking clarity on how to use it across deal lifecycles. To gain greater efficiency and productivity benefits from generative AI—and potentially realize greater returns—M&A leaders need to refocus, rebalance and proportionately align their investments to the areas that bring value," said J. Neely, global M&A lead and senior managing director at Accenture.

SOURCE: Accenture

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