Good morning, dealmakers. MK Flynn here with the Wire on this Tech Tuesday.
This morning, we’re continuing our quest to find out how private equity firms are thinking about ChatGPT and generative AI.
We’ve got a terrific interview with BC Partners’ Lakshman Charanjiva on how the firm is using the new technology in its dealmaking and other activities.
And we’ve got some thoughts from Goldman Sachs on the hot topic.
In other news, we’ve got a Deep Dive on GTCR’s legendary The Leaders Strategy.
Let’s get to those stories now.
Identifying opportunities
BC Partners has a partner-level working group setting the firm’s strategy and direction for using generative AI, Lakshman Charanjiva, partner and portfolio chief technology officer, portfolio operations, told Craig McGlashan, the editor of PE Hub Europe.
The London-based firm is already doing trials with tech developers for its own internal processes, including deal sourcing, search and retrieval and data analysis.
The firm is also building APIs that will let trained generative AI large language models (LLMs) combine with its unstructured and unlabeled proprietary data, which otherwise “would be hard for an associate to weed through,” Charanjiva explained. “We can certainly use GenAI for easier information gathering and filtering on news, results, conference presentations, media statements, market whispers, probability/timing of businesses we like coming to market etc,” he added.
“This is work that takes our associates a lot of time and effort can be made more efficient and faster and could potentially surface something we had not been aware/thinking of. In our sectors and geographies, we generally know which target companies meet our investment criteria; where GenAI can be very helpful is in identifying add-on opportunities in the private markets.”
This is especially timely, given that many firms have shifted their attention to add-on deals, with bigger platform investments harder to close in the challenging economic environment.
On due diligence, the technology “can be very useful in rapidly searching VDRs [virtual data rooms] and publicly available data via prompts, and in-market scans and surfacing competitor information for our commercial diligence,” Charanjiva said.
And at the portfolio level, BC Partners is working with several of its companies to leverage generative AI in software development, legal and data analysis to improve operational performance and efficiency.
Permeating every element
Yesterday, one of Goldman Sachs’ most senior bankers said the firm is giving serious thought to the business implications of artificial intelligence, Alex Lynn reported.
Speaking at Private Debt Investor’s Seoul Forum on Monday, Todd Leland, president of Goldman Sachs International, told delegates that the nascent technology was an increasingly important area of focus.
“I think AI is something that’s just permeating every element of conversations we have,” Leland said. “Because you can have a debate as to what the timeline is: whether it’s three years or five years or 10 years. But… I don’t see this as a 20-year debate – it’s a question of when on that timeline does it really start to transform industries?”
Later this week, I’ll be sharing an interview with One Equity Partners’ Chip Schorr about how OEP is using generative AI.
If you’ve got thoughts on generative AI and PE, we’d love to hear them. Email us at mk.flynn@peimedia.com and craig.m@pei.group.
And if you’d like to see how third-party origination services are already using ChatGPT and generative AI in the deal sourcing process, click here to read a recent story on PE Hub.
On the hunt
PE Hub’s Rafael Canton caught up with GTCR director Kevin Fitzgerald about the most recent announcement in The Leaders Strategy, the Chicago firm’s well-known method of teaming up with experienced executives in a particular subsector to create a platform investment.
Earlier in June, GTCR announced it was partnering with Matt DiMaria to form Stelao, a software company. Stelao aims to build a leading enterprise software platform enabling data-driven customer experiences and measurable outcomes, according to the press release.
Alongside DiMaria is Adam Ragauskis, Chris Loeper, Kurt Nelson and Daniel Bohannon. The group was the executive management team at Mindful, a private equity-backed provider of enterprise callback technology. Last year, Mindful was acquired by Medallia, a San Mateo, California-based customer and employee experience company.
Fitzgerald said GTCR’s core belief is that talented management teams and executives are able to drive outsized growth and scale.
“About 40 percent or so of our investments start in this management startup model where we’re partnering with executives that we’ve built relationships, and we believe have the ability and experience to drive long-term enterprise value creation,” Fitzgerald told Rafael. “It’s also important to have a thesis that we feel is aligned with our industry groups and where we spend our time.”
Stelao is currently in its search phase, on the hunt for a platform investment that would be its initial acquisition. From there, the company will make add-ons.
“The add-on strategy is one where we are very purposeful,” Fitzgerald said. “That’s a combination that’s oftentimes organic and inorganic, but we don’t have a preconceived plan, because we haven’t identified our initial platform acquisition.”
GTCR has previously used The Leaders Strategy many times, including in the software field. One past example Fitzgerald pointed out: In 2020, the firm created Guideline (initially called Dreamscape) in partnership with Scott Knoll, David Hahn and Michael Iantosca. The trio worked together from 2012 to 2019 as senior executives at Integral Ad Science, bought by Vista Equity Partners in 2018.
Guideline took nearly two years to complete its search process before acquiring SQAD, an advertising research, analytics and media planning software company headquartered in Tarrytown, New York, in 2022.
Soon after, Guideline acquired a second business named SMI, a New York-based global ad intelligence company. Since then, the company has made subsequent add-on investments.
Fitzgerald said that GTCR envisions itself ultimately having a majority equity position in Stelao but right now, it is a true partnership with the management team.
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That’s all for today. Buyouts’ Chris Witkowsky will be back with the Wednesday Wire tomorrow.
Happy dealmaking,
MK
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