Artificial intelligence has the potential to change deal sourcing in private equity.
Firms are looking for any edge they can get in the race to deploy capital in a competitive environment with high interest rates, and the promise of Large Language Models (LLMs) is that they’ll enable investors to more efficiently gather, structure, and analyze large swaths of data at scale.
AI is primarily influencing buy-side market research and outbound marketing, as firms have begun leveraging this technology to help automate the data collection and analysis that is otherwise delegated to analysts. That’s a bet worth taking, but with a cautious and deliberate approach. Like any emerging technology, we’re still learning where AI excels, and where it falls short, especially so early in deployment.
For more than a decade, TruSight has helped clients optimize their position in the Lower Middle Market by providing intermediary and proprietary deal flow. Private equity firms, strategic investors and family offices rely on TruSight to identify and connect them to high-quality deals that they would have missed from long-tail investment banks and brokers, and private businesses.
Great data is key to our operations, and we’ve experimented with a variety of platforms and tools that utilize artificial intelligence. Here’s what we’ve learned so far.
Market Research & Target Identification
Acquisition target research is the starting point of all M&A searches and is often the most tedious. Firms must not only look for companies that fit their acquisition criteria, but also dig for hidden gems not already identified by competitors. AI analysts can take search criteria and create a list of targets, populate contact information, and even estimate size based on a variety of creative predictors.
It’s an efficient way to start a search, but with an asterisk: AI can only provide data that is already available. This can lead to incomplete datasets, such as company profiles with missing information. For example, many companies and owners are not listed on Google or LinkedIn and will not show up whether it is a human or AI doing the research. The real benefit is the speed and completeness at which these programs can gather the foundational information.
TruSight uses these tools to identify interesting opportunities and build a base data set, then verifies and enriches that data to ensure our clients have the most complete target lists possible. The human touch gets it across the finish line.
Outbound Marketing
Once the target list is set, artificial intelligence can write your outbound copy and automate marketing campaigns. Personalization based on industry, product lines, or recent news can be applied to email and LinkedIn messaging and sent in complex, multi-touchpoint campaigns. There are even advancements in judging sentiment of responses from owners and categorizing their interest in selling.
That said, AI isn’t perfect. The technology is taking a best guess of what a company does, what will resonate with an owner, and what their true interest level is. Firms relying solely on AI to manage their outbound efforts may find that it cannot capture the essence of the company or read the underlying sentiment of an owner in their response.
TruSight uses tools such as these to manage the initial heavy lift, while vetting messaging and outreach procedures to ensure the personalization and messaging resonates with founders and owners.
Relationships Are Still Key
While artificial intelligence is evolving how firms approach research and outreach, as more firms choose these tools and call on the same companies, what’s left for differentiation is what the buyer brings to the table.
AI cannot make a business owner sell or make a deal a good match; it can only identify targets. What will get the deal done is the strategic value-add and how it is presented to sellers. Middle market firms, and the advisors that represent them, will always need to craft compelling stories that demonstrate the unique value of a partnership.
As a tool, AI is rapidly changing the workflow for finding and connecting with off-market businesses. But little has changed about human-to-human relationship-building—it's only become more important to middle market deal sourcing.
