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How EY can help
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Value creation is at the core of every transaction investment thesis. Our team supports private equity firms throughout the investment lifecycle from origination to exit. We bring deep sector, operational and functional experience to identify investment risks and opportunities focused on cash and profit levers to make an investment successful.
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Driving new value
As part of their evaluation, PE firms are on the lookout for ways in which AI can create new value and spur growth. The technology sector stands out as a prime example where new investments could be made: Companies that offer state-of-the-art GenAI-driven products and services, for instance, are growing rapidly and are already starting to see enhanced valuations. As an example, according to Bloomberg, Character.ai, a US-based start-up, is in the early stages of discussions to secure additional funding, possibly exceeding US$5 billion or even US$10 billion in valuation, representing up to a 10-fold increase since March.
In other sectors, companies yet to modernize their back-office functions or business operations could make prime investment targets if AI is implemented rapidly to enable cost reduction and future growth. In the healthcare industry, for example, the integration of AI with existing practices – ranging from diagnostics to treatment and even patient care – is creating a diverse array of investment possibilities. In the consumer space, platforms that use AI to mine data for insights are already transforming how brands secure loyalty and engage with customers, with the potential for considerable returns.
When it comes to unlocking new value, key questions to ask are:
- In what ways could AI transform undervalued assets and significantly enhance their value?
- How could AI refine pricing strategies and strengthen branding, especially in sectors that are consumer-focused and highly competitive?
- What approaches can be employed to reinvent customer support and enhance engagement using GenAI?
- How can AI be used to make supply chains more efficient and improve forecasting and inventory management?
A strategy for action
Understanding the balance between new value-creation opportunities with GenAI and the risks this rapidly emerging technology creates for existing portfolios allows GPs to make decisions that are both strategic and informed, and oriented toward maximizing returns.