The impact of artificial intelligence (AI) on private equity firms and middle-market companies is multifaceted and gaining momentum. According to Private Equity Wire and ontra’s report, Transformation Track: Private equity’s journey to a tech-powered future, 66% of private equity firms consider AI and machine learning essential tools. However, only 7% have adopted these technologies so far.
Meanwhile, Deloitte Private’s 2023 Mid-market technology trends report reveals that AI has become the top tech investment priority for mid-market companies. The number of respondents identifying AI as their foremost priority has increased from 12% in 2021 to 40% in 2023. Interestingly, companies with active AI solutions report a revenue growth of 20% or higher, which is more than twice the rate compared to those not utilizing or exploring AI.
AI is advancing as a major driving force in the private equity and mid-market landscape, from being prioritized as a top tech investment to significantly impacting revenue growth and talent acquisition strategies.
At E78 Partners, we recognize the potential of AI to transform the role of Chief Financial Officers (CFOs) by accelerating basic tasks, streamlining business processes, enabling a better understanding of pricing sensitivity, and extracting valuable insights from vast data sets. By harnessing AI’s capabilities, organizations can drive improved financial decision-making, boost operational efficiency, and provide a competitive edge to middle-market and private equity-backed firms. Learn more below.
How CFOs can leverage AI
1. Accelerating basic tasks
AI algorithms and machine learning streamline business processes by automating repetitive and time-consuming tasks. By accelerating essential tasks such as data entry, reconciliation, and reporting, finance teams, and CFOs specifically can focus on high-value activities, strategic planning, and oversight. Ultimately, automation leads to higher operational efficiency, reduced errors, and significant time and cost savings for private equity-backed firms.
2. Understanding pricing sensitivity
To make well-informed investment decisions, CFOs need insights into how prices respond to changing market conditions. AI can analyze large volumes of pricing data, identify patterns, and predict how market dynamics will impact pricing sensitivity. With this information, CFOs can better understand the potential financial outcomes of various investment strategies and make risk-adjusted decisions that align with their firms’ objectives.
3. Gleaning insights from larger data sets
The ability to extract valuable insights from massive data sets is invaluable for private equity-backed firms. AI-powered data analytics tools can rapidly process and analyze vast amounts of structured and unstructured data, uncovering hidden relationships, trends, and opportunities that may not be apparent with traditional analysis. These insights help CFOs drive better financial decision-making, improving company performance, and offering a competitive edge in the market.
Challenges and Looking Ahead
Despite the numerous benefits of AI, its adoption in private equity-backed firms also poses challenges. Factors such as data privacy, security, and ethical considerations must be addressed to ensure responsible and effective AI implementation. Additionally, smaller private equity firms with limited resources may face barriers in deploying AI solutions due to costs and the steep learning curve involved.
Nevertheless, the potential benefits of successfully integrating AI into private equity-backed firms’ financial management systems are significant. By leveraging AI’s capabilities in accelerating basic tasks, understanding pricing sensitivity, and gleaning insights from larger data sets, CFOs can drive efficiency, informed decision-making, and maximize returns in an increasingly competitive landscape. Embracing AI is not only vital for growth but essential for continued progress in today’s rapidly evolving technology ecosystem.
Learn how AI can impact your organization by contacting us today.