The future of dealmaking belongs to AI-infused firms

Imagine a private equity firm where AI is integrated into every part of the business, from finding deals to managing them after they close. What once sounded futuristic is quickly becoming a reality as traditional dealmaking evolves in a new era powered by AI. 

Firms that view AI merely as off-the-shelf tools will be able to tread water in the new dealmaking landscape, but their progress will be limited by a lack of customization and integration. These firms typically rely on commercially available AI solutions without significant adaptation to their specific needs. 

Firms that take it further and think of AI as a co-pilot to weave into their enterprise platforms will see more substantial benefits. This approach directly integrates AI capabilities into existing workflows and systems, allowing for seamless adoption and improved efficiency across the organization. 

But the real winners—the firms that will stand out among the competition—will be the ones that fully embrace domain-aware generative AI—automation that "knows" their business. 

These firms will develop or adapt AI systems that deeply understand private equity processes, market dynamics, and firm-specific strategies. This level of AI integration acts as an architect: not just shaping individual deals but also reinventing how the firm does business and shaping the future of dealmaking. 

More importantly, this AI-driven transformation will not exclusively belong to top-tier institutions with vast budgets and expansive resources. As AI technologies become more accessible and adaptable, they will level the playing field for identifying, analyzing, and executing complex deals—empowering a wider range of players to compete effectively in the market. 

AI can transform each element of the private equity lifecycle: enhancing decision-making, optimizing operations, and uncovering new opportunities—including the following areas:

AI as a deal scout 

AI algorithms can be trained to analyze vast amounts of data, including market and industry trends, financial reports, and even social media to identify potential acquisition targets long before human analysts would be able to spot them. 

Taking this one step further, a more advanced AI system might also be able to predict company success—sooner identifying future market disruptors or high-growth companies by spotting subtle trends in data that may escape human observation. As these recommendations and insights are provided in real-time, firms can act swiftly and strategically to maintain their competitive edge. 

Enhancing due diligence precision and speed 

Due diligence, a historically laborious and time-consuming process involving day-long on-site meetings, became expedited during the COVID-19 pandemic. It quickly became a remote exercise predicated on request lists and data rooms in recent years as companies demanded quicker turnaround times. This challenge has driven private equity firms to explore AI-powered solutions. 

West Monroe's proprietary prompting platform, Nigel, exemplifies cutting-edge innovation in AI-powered due diligence. Nigel leverages large language models (LLMs) enhanced with Retrieval Augmented Generation (RAG) to process and analyze sensitive diligence data securely. 

A rigorous QA process increases the reliability of AI-generated information, increasing the confidence in this approach to automate the mundane, comparable to using spell check on documents. Human professionals can, instead, focus on strategic decision-making and on maximizing their limited time with potential acquisition targets. 

Building on Nigel’s flexibility, West Monroe developed Intellio Advantage, a custom web application augmenting generative AI with proprietary benchmarking data from thousands of West Monroe diligence deals. This synergy of AI and domain-specific data creates a powerful tool for comprehensive deal analysis in nearly real-time using three primary components:  

• Discovery efficiently gathers and organizes requested deal room data, automating the review process to quickly identify gaps in knowledge or documentation from a target.  
• Analysis uses LLMs to deliver performance metrics, identifying early challenges and a sneak peek into report conclusions.
• Comparison evaluates current metrics against anonymized benchmarking data from historical engagements and other third-party data to identify significant deviations that answer the question: Is this similar to other organizations?  

By offering swift, data-driven, and AI-augmented feedback, Intellio Advantage streamlines tasks, reduces manual effort, and empowers clients to identify early opportunities for value creation.

Leveling up deal structuring 

An AI-driven approach to structuring will enable firms to develop more efficient and optimized deals. AI algorithms have the computing power to simultaneously run many financial models that factor in market conditions, regulatory considerations, and company-specific factors that emerged from diligence to develop optimized, tailored deal structures. 

The ability to quickly analyze and act on real-time data means that deal terms can be adjusted almost instantly based on market conditions, potential risks, and diligence findings. By analyzing past transactions and their outcomes, AI tools may be able to provide creative financing recommendations that may have otherwise been overlooked.

Enabling operational excellence post-acquisition

 AI tools drive value creation and operational improvements after an acquisition. Private equity firms can use these tools to comprehensively review the ins and outs of their portfolio companies and develop recommendations for reducing costs and creating value. This includes: 

• Analyzing supply chain data to identify inefficiencies, streamline operations, and reduce costs. 
• Implementing AI-powered productivity tools to automate manual tasks and optimize workflows, improving efficiency, and freeing time for employees to focus on higher-value tasks.
• Reviewing customer data to improve service quality and, over time, personalize interactions to ensure higher customer satisfaction and loyalty.
• Continuously monitoring overall portco performance and providing actionable insights for enhancing operations and achieving strategic goals. 

West Monroe has developed CustomGPTs, specialized AI tools designed to document and analyze current-state processes from various documentation sources and versions. This significantly reduces the time needed for this essential step. These tools help private equity firms identify inefficiencies and opportunities for improvement in their newly acquired companies. 

Additionally, West Monroe’s CasePlace platform uses AI to enhance operational excellence after acquisitions. This platform is a comprehensive library of case studies with AI-generated descriptions. It allows West Monroe experts to quickly access relevant expertise and best practices from across the firm. By filtering and sorting based on criteria such as industry, service offering, and engagement type, professionals can swiftly find proven strategies and solutions that have been effective in similar post-acquisition scenarios. 

This AI-driven knowledge management system reduces the time and effort needed to find and apply the right operational improvements, ensuring that lessons learned from past successes can be efficiently applied to new portfolio companies. 

By leveraging these AI-driven tools, firms can accelerate the post-acquisition value creation process, making data-driven decisions and implementing targeted improvements across their portfolio companies. The combination of AI-powered process analysis and a vast, easily accessible knowledge base of past successes enables firms to drive operational excellence with unprecedented speed and precision.

Infusing data-driven insights into investment strategies

A truly AI-infused firm looks beyond dealmaking and incorporates AI into other areas of operations. AI-generated insights can support investment strategies by simulating various scenarios and predicting outcomes based on historical data and market conditions. This helps to optimize portfolios by ensuring continued alignment with market trends and can also aid in making investment decisions by identifying undervalued assets and making predictions on opportunities that may yield high-growth returns. 

These data-driven insights will enable agile decision-making by continuously monitoring market conditions and adjusting recommendations in real time, helping firms respond swiftly to market and industry changes.

Upgrading risk management

Leaning into its advanced data analysis capabilities, AI systems can continuously monitor internal and external data sources to spot early signs of risk, including market volatility and regulatory changes. Besides spotting warning signs, AI tools can simulate various risk scenarios and predict potential outcomes based on historical data and current market conditions. This enables firms to assess risk more effectively and develop proactive mitigation strategies.  

Armed with this comprehensive view of potential risks and their impacts, AI-infused firms are set up for more informed, strategic decision-making, which contributes to overall resilience and stability. 

Success later requires action now

All private equity firms can become AI-infused firms, but it’s not an overnight endeavor. Firms need to start making shifts in their talent, data, and culture to successfully embrace AI's full potential. 

Embracing the AI-Infused future

The future of private equity is an AI-infused firm, combining human ingenuity and AI capabilities to enable unprecedented performance and innovation. AI's transformative potential for any firm truly is limitless—or, at least, only as limited as the mindsets responsible for championing AI innovation.