Private equity has an AI problem, and it is not the one you read about. Buyers expect an agentic story in every company they look at. The people running those companies say the results are incremental. Both are true at the same time.
Private equity has an AI problem, and it is not the one you read about. Buyers now expect an agentic story in every company they look at. The people running those companies say the results are incremental. Both of those are true at the same time.
On Dry Powder, Vista's Robert Smith puts a number on the ceiling.
"Less than one percent of the enterprise data can be absorbed by these large language models. And as a result of that, you actually have a very high level of use, but very low level of, call it, fully scaled enterprise or agentic solutions, right? Across the board. You know, you have a lot of experimentation, a lot of piloting, some scaling, but very little is in kind of the fully scaled environment."
Plenty of AI use. Almost nothing finished. That is a common theme in PE circles when talking about transformation.
Later in the same episode, what buyers are paying for:
"And we've told our teams, every one of our companies has to have an agentic angle to it that actually works, and that's what's actually creating the interest of strategic buyers."
"What they really liked about it was they saw the agentic capacity of what we had built in that business, and saw how it can affect the rest of its business. And I think that's one of the reasons that they decided this was a worthy time and the right time for them to buy that business."
Companies need to make AI part of the exit now, which means it needs to become part of the company, not something dropped in by a consultant.
And still, from the same episode, the deflation:
"What I could tell you from our experience is it's helpful, but it is still a long way from transformational. So it's another value creation lever, but we have not seen many, if any, instances of what you sometimes hear in the press of like, my God, there's like these massive AI transformations going on. There's some, but it's still early, and across our many, many, many experiments, it tends to be an incremental lever, not the driver of a deal outcome."
An incremental lever. Not the driver of a deal outcome. Impact is a company by company and market by market valuation. There will not be one solution for every business.
On the Private Equity Funcast we hear how big the need for AI transformation is.
"They're buying it because it had 5,000 customers who paid $5,000 a month, and then 98% of them retained, and 110% net retention because we had add-on stuff that we were able to sell more each year. Somebody's going to look at that same exact business today, because it's happening today and for the next several years, and say, like, I need to rebuild the factory."
Same business, same metrics, a different question. What the buyer is underwriting now is whether the factory has to be rebuilt, and who pays for it.
Companies that want to stand out in the current environment need a solid AI story built into the business. The value comes from real change in the core capabilities of that operating unit. Capabilities that survive diligence.
People, data and process, in that order.
Sources: Dry Powder (Bain & Company), "Where AI Is (and Isn't) Creating Value." Private Equity Funcast, "How PE Firms Are Actually Using AI Right Now."