How Private Equity Firms Are Transforming Deal Analysis with AI

Private equity firms are facing increased competition for attractive deals. Both deal volume and overall deal values are down (excluding IPO activity), inevitably increasing competition for top-quality assets. This has a direct correlation to value creation. Firms are increasingly offering higher multiples to win deals, intensifying the pressure to deliver value and achieve successful exits.

As portfolio companies hold periods lengthen, private equity firms face growing pressure from limited partners (LPs) to return capital at a higher Multiple on Invested Capital (MOIC). If they do not deliver the expected returns, raising future funds becomes more challenging. One clear trend in unlocking value is the use of Artificial Intelligence (AI) in the deal process. With the increased pressure to surface potential targets, AI helps sift through the opportunities to focus on deals that align with a firm’s criteria and that they have a realistic chance of winning.

Key Takeaways

• Both deal volume and deal quality have been declining, intensifying the competition and pressure to create value.
• AI accelerates deal sourcing, due diligence, and evaluation, allowing deal teams to focus on judgment-driven analysis instead of manual data review.
• AI still requires human oversight. Hallucinations, overreliance by staff, data breaches, and noncompliance are the main risks firms must manage.
• Firms adopt AI responsibly by building it into daily workflows, creating governance policies, training staff, and maintaining consistent data across platforms.
• Working with an experienced third party can improve AI adoption success and strengthen compliance and security.

Where AI Fits Across the Deal Lifecycle

How AI Supports Pre-Transaction Deal Sourcing

Firms can deploy AI at various points in the pre-deal process to identify and evaluate prospective targets. Often, firms find deals in two ways: through proprietary sourcing or intermediaries. Many firms do both simultaneously, and AI can aid with both. AI can build lists of companies to target and even conduct email outreach, alleviating the time spent finding and contacting prospects. When working through intermediaries, like investment banks or brokers, AI manages the deal flow, strengthening communication among parties. Firms also use AI to research targets and their markets, enabling them to do so quickly and cost-effectively so they can narrow potential investments and stay focused on the right pursuits.

Once a target company sends materials—financial statements, Confidential Information Memorandums (CIMs), etc. –firms can use AI to synthesize documents and quickly determine whether the target meets their investment criteria.

How AI Accelerates Due Diligence

Speed can be a differentiator on deals. This is especially true during the diligence process because the longer it takes to close a deal, the higher the risk that something can go wrong. If a firm moves faster, it demonstrates higher interest. AI also enables faster deal analysis without increasing resources, making it a powerful tool during the due diligence phase to unlock value.

Once a target company shares financial, legal, tax, and operational information, private equity firms can leverage AI to quickly build financial models, tax summaries, and analyses of legal documents faster than with traditional methods. As AI rises in sophistication, third-party platforms are developing AI tools that can process large data repositories, including:

• Financial statements
• Contracts
• Product descriptions
• Organization charts
• Payroll data

While not a replacement for human-led due diligence, AI can streamline the process and identify areas that require further human investigation. This enables the PE deal team to focus on higher-value-added analysis to enhance decision-making capabilities aligned with the PE firm’s specific value-creation plan. 

How AI Supports Deal Evaluation

Many PE firms fear that AI tools might generate work products (reports, analyses, content, code, etc.) that don't match their internal quality standards, style guidelines, compliance requirements, or established ways of doing things. AI can store a firm’s standard templates with defined guardrails, allowing firms to create investment committee memos and presentations rooted in established principles and key deal issues aggregated from all diligence streams. AI is a powerful tool for streamlining both complex and simple tasks. From checking formulas and proofing memos to identifying data discrepancies and trends or performing complex analysis, AI can be harnessed at every step.

What Are the Risks of AI in Deal Analysis?

Although AI offers significant value in the deal analysis process, firms should be aware of the associated risks. Failure to understand these risks can pose challenges down the line, potentially delaying or terminating deals. Common risks include:

• Hallucinations: AI isn’t perfect; it shouldn't be treated as such. AI can produce inaccurate results when fed incomplete data sources, making it imperative to double-check its outputs.
• Staff reliance: AI does not replace human judgment. Staff should not solely rely on AI and should use sound judgment before accepting outputs as facts.
• Data breaches: Like many online tools, AI platforms are vulnerable to breaches. Before inserting sensitive data into the AI platform, it is necessary to build adequate cybersecurity measures. It is also recommended to use enterprise versions for heightened security.
• Legal & Compliance Risks: Inserting confidential financial statements into an AI tool built on a public data model could breach non-disclosure agreement (NDA) obligations. If AI tools become widely available and every PE firm uses similar AI-driven approaches (for sourcing deals, running due diligence, analytics, etc.), then the skills and processes that used to differentiate one PE firm from another could become standardized — i.e., “commoditized.”

While AI is a tool to enhance processes from deal execution to value creation, PE firms rely on their judgment and deal-making experience, which they can’t yet relinquish to AI. Otherwise, they may not meet their fiduciary obligations.

How Can PE Firms Adopt AI Responsibly?

A study showed that 82% of finance leaders are concerned about the misuse of AI in their practice. While the risks are real, they can be significantly mitigated when AI is adopted responsibly. Organizations should prioritize AI governance, employee training, and data consistency.

Build AI Into Processes

Rather than using AI for one-off tasks, firms should embed AI directly into their core processes to drive broader adoption. Doing so also improves output quality over time, since AI can draw on a wider, more consistent base of institutional knowledge rather than starting fresh with each isolated use.

Embed AI Governance

Firms should embed AI governance into their processes from the outset. By implementing clear policies and guardrails, firms can trust that their AI tools operate within defined principles and compliance standards — reducing the risk of bias, inaccuracy, and lack of transparency.

Train Staff on Proper AI Use

Training employees on proper AI use enables safer, more responsible use across departments. PE firms should conduct frequent training to answer questions, confirm understanding, and demonstrate adherence to protocols outlined in the AI governance plan.

Maintain Data Consistency

AI outputs are only as good as the inputs, and it can take time to build the AI tool’s data foundation. Consistency enhances the ability to analyze deals in real time, as well as the success of deals and achievement of the goals outlined in the initial investment thesis. Firms that leverage consistent and accurate data, coupled with the power of AI, can improve decisions in the future.

How EisnerAmper Helps

There is a saying in dealmaking that time kills deals. EisnerAmper understands this and the fast-paced PE environment. Our AI and Transaction Advisory teams work together to help your firm build, manage, and implement AI—without compromising time or data security. The duality of our team equips firms with the right tools to proactively mitigate risks, streamline productivity throughout the deal lifecycle, and ultimately create value.

Ready to assess how AI could positively impact your firm? Contact us below to learn more.