How AI Is Reshaping Mid-Market PE-Backed Industrials

Private equity firms have long focused on creating value through operational efficiency, strategic acquisitions, and digital transformation. Now, AI is becoming a powerful accelerator, especially in industrial, industrial services, and manufacturing sectors.

With control over operations, access to capital, and the ability to align incentives, PE firms are uniquely positioned to embed AI across their portfolio companies (PortCos). The result? Smarter decisions, faster growth, and measurable impact.

From streamlining operations to improving customer experiences, AI is helping PE-backed businesses become future-ready, AI-powered ecosystems. And no matter the strategy, AI is emerging as the key differentiator in mid-market PE hiring and diligence.

AI in Action at Industrial PortCos

Mid-market PE firms often back companies still scaling and vulnerable to disruption. With labor shortages, geopolitical risks, and rising tariffs, margins are under pressure. That’s why many are turning to AI to increase efficiency and strengthen customer retention.

While most firms are still early in their AI journey, they’re focusing on practical use cases that deliver real results:

• Predictive maintenance to reduce downtime and improve asset utilization
• Computer vision for real-time defect detection and better-quality control
• AI-driven forecasting to optimize inventory and reduce stockouts
• Personalized reorder alerts to improve delivery and drive repeat business

According to one operating partner who spoke with Korn Ferry, a PE-backed, mid-sized HVAC supplier used AI to tailor reorder alerts for B2B clients, leading to better on-time delivery and more repeat orders. Early wins like this show AI’s potential to drive measurable impact, even as firms continue to test, learn, and scale.

Sponsorship AI: Driving Value from the Top

Private equity firms are using AI to uncover hidden efficiencies, spot pricing gaps, and identify underused capacity, starting as early as due diligence. This leads to faster EBITDA gains post-close.

Now, these firms are assessing AI maturity and opportunity as part of their investment evaluation. At the same time, portfolio ops leaders are building networks of AI startups to deliver plug-and-play solutions across PortCos.

Some PE sponsors are even partnering with hyperscalers to co-develop AI tools, giving mid-market companies access to advanced tech and expertise they couldn’t get on their own. As one leader told Korn Ferry, these partnerships unlock value across multiple PortCos, with PE firms orchestrating both the creation and adoption of AI solutions.

Private equity firms know AI isn’t a silver bullet, but it can deliver real, incremental gains. Think fewer defects, faster throughput, and smarter decisions.

To make AI stick, mid-market firms are embedding AI maturity assessments into their diligence playbooks, evaluating tech infrastructure, leadership mindset, and readiness to scale. They’re launching 4–6-week pilots, embracing a “fail-fast” approach, and focusing on what works.

The goal isn’t instant transformation—it’s repeatable wins that build long-term value. While accelerating product development through AI may not pay off today, it sets the stage for future returns.

The Talent Equation: Building AI-Ready Leadership

As AI becomes a critical value driver, mid-market PE firms are rethinking their approach to talent. They’re looking for leaders who can apply AI across operations, customer engagement, and margin growth.

We know that change-ready leaders focus on agility, collaboration, and purpose-driven decisions. But our research shows that AI-ready leaders go further by prioritizing disruption, reskilling, and staying ahead of tech shifts. These leaders:

• Commit to a long-term AI vision, even without quick wins
• Stay resilient and adapt in real time
• Move fast, avoiding paralysis after success or failure
• Build AI fluency and encourage continuous learning
• Address fears, lead with integrity, and earn trust
• Deliver results, even when transformation is complex

Today, leadership roles are going to candidates with hands-on AI experience. Some firms are even bringing in AI-savvy operating partners or building early-stage AI Centers of Excellence (COEs) to scale proven solutions like predictive maintenance and pricing optimization. Whether through COEs or curated vendor networks, AI capability is becoming a differentiator in hiring and diligence.

AI Roadblocks: What’s Holding Firms Back

It’s not easy to deploy AI in industrial companies. Many lack the data infrastructure needed to support AI, and legacy systems, fragmented data, and cultural resistance all slow progress. They also face a shortage of talent with real-world AI experience in industrial settings.

PE firms can help overcome these challenges, but it takes time. Before AI delivers quick wins, foundational upgrades must be made.

From Experimentation to Execution

Mid-market PE firms are becoming powerful drivers of AI adoption. With operational control, targeted capital, and a growing bench of AI-fluent leaders, they’re rolling out high-impact solutions across industrial and manufacturing PortCos.

Private equity firms are embedding AI in diligence, leadership hiring, and operating models. While challenges remain, firms are pushing past them with cross-portfolio playbooks, vendor networks, and early COEs.

AI is moving from hype to hard value. Firms that act now and build teams that can execute will gain an edge and drive long-term outperformance.

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