Applied AI is Leading the Charge in the Dawn of a New Era for Buyout Firms and Their Portfolio Companies
Who will be the investors to first win big with AI? Tech investors? No. The first big winners are shaping up to be buyout funds. That’s what we’re seeing from leading AI software vendors—their fastest-moving customers are PE-backed firms realizing dramatic cost savings. Most of these are large, privately held companies offering B2C services and owned by financial sponsors.
Why is this the case? You wouldn’t normally think of a typical low-growth, profit-focused, non-tech PE portfolio company as an early adopter of new AI technology. Yet, they are, and here’s why:
- Conversational AI is ready to deploy today and works at scale. Enterprise AI applications can automate 50% to 75% of customer conversations, leading to dramatic cost savings.
- This is an EBITDA decision not a technology decision. It’s not just another productivity tool; it reduces labor costs significantly.
- AI implementations are CEO- and Board-led. Leaders with the authority, imperative, and incentives to drive operational changes lead these initiatives.
- Privately held companies have the ownership and control to act as first movers. PE-backed firms, in particular, are well-suited to implement AI-driven transitions.
- The gains are substantial. A 400-basis-point (4% of revenue) profit increase can significantly enhance the return profile of a buyout.
Most PE portfolio companies lack the R&D budget to develop their own AI solutions. Conversational AI enterprise applications solve these technical challenges with compelling price-performance ratios, often delivering payback in as little as three months.
The initial phase of PE conversational AI deployments will focus on cost savings, future initiatives will revolve around service expansion and business model improvements. We anticipate a wave of buyout rollups predicated on AI automation for productivity gains—likely within the next 24 to 36 months.
At Savant Growth, we observe these trends across our enterprise AI investment portfolio. Leading platforms like IntelePeer, a communications automation company, are becoming critical enablers for PE-backed firms in healthcare, financial services, and retail. These solutions deliver tailored workflows that enhance efficiency and support strategic transformation in portfolio companies.
Why Applied AI Is the Game-Changer for Buyout Firms
Applied AI solutions align perfectly with the unique needs of buyout firms. As the AI revolution unfolds, PE firms and their LPs are positioned to reap outsized benefits. By adopting applied AI solutions, they can rapidly enhance portfolio company performance while laying the foundation for broader strategic transformation. Key advantages include:
- Rapid Cost Savings
PE firms demand quick, measurable performance improvements in their portfolio companies. Applied AI delivers immediate cost savings by automating tasks and optimizing processes in areas like customer support and back-office operations. - Strategic Transformation
Beyond cost savings, applied AI enables long-term value creation. By transforming business processes and enhancing decision-making, it unlocks opportunities for strategic transformation and competitive differentiation. - Top-Down Implementation
Unlike personal productivity tools, which rely on grassroots adoption, applied AI thrives in top-down initiatives—an area where buyout firms excel. This approach ensures alignment with business objectives and maximizes impact.
The Future of Buyout Firms in the AI Era
Firms that act quickly and decisively to embrace applied AI will secure a competitive edge in the short term and redefine value creation in private equity. This is the dawn of a new era for buyout firms, positioning them at the forefront of technological advancements. By 2025 and beyond, applied AI won’t just be a tool—it will be a game-changer, empowering buyout firms to unlock unparalleled potential across various sectors.
