Every year, private equity funds spend significant amounts of money (I’d estimate billions) on a process that hasn’t meaningfully changed in decades. When evaluating significant acquisitions, they have historically turned to a handful of large consulting firms. The consulting fees can be eye-watering—I’ve seen rates going at $250,000 per week for a small team, resulting in close to a million dollars for a research report.
I’ve seen this firsthand, first as a principal at Blackstone, where I spent six years investing across New York, San Francisco and London, and now as the co-founder and CEO of DiligenceSquared, a company I started to solve one of the biggest pain points I experienced: the inefficiency of commercial due diligence.
At the end of the project, the client receives a 200-page slide deck. It’s high-quality work, but it’s extremely labor-intensive, and the insights are static and difficult to audit. Despite major advances across the broader dealmaking landscape, commercial due diligence has evolved more slowly.
Pressure is building for that model to change.
The Markup On Junior Consultant Labor
When private equity funds identify promising targets, they need critical answers: What are customers saying? Who are the real competitors? What’s the market opportunity? And what commercial risks exist? Understanding these factors is essential to projecting revenue over a typical 5-10 year hold period.
Initially, funds tackle this internally with junior associates. But as deals intensify, resource constraints force them to hire external consultants. With multiple diligence workstreams (commercial, financial, legal, talent, etc.), there simply aren’t always enough internal staff.
Consultancies dispatch teams of a partner, project manager and several junior consultants. The economics are striking: I’ve seen up to 10-times markups on junior consultant salaries. A recent college graduate conducting interviews and building decks generates enormous margins.
The sales pitch often emphasizes partner involvement and deep industry expertise. The reality? Partners sell the engagement, then move to the next deal. The substantive work (50-plus expert interviews, insight synthesis, chart creation) falls to entry-level consultants.
The consulting firm’s stamp of approval provides credibility with investment committees, limited partners and debt providers. And when deploying that much capital, $750,000 for a report is defensible—but defensible doesn’t mean optimal.
The Innovator’s Dilemma, Consultant Edition
The incumbent consultancies face a classic innovator’s dilemma. Their business model often depends on selling labor at massive markups. Their competitive moat is attracting top talent from elite universities and selling that talent at premium prices.
Streamlining consultant-driven workflows would fundamentally reshape the industry’s core economics. If a project can be completed in a week because new tools can assist with work traditionally handled by junior consultants, why should clients keep paying for three? Private equity funds—long accustomed to scrutinizing cost structures—will inevitably begin to push back.
There’s another tension: If large consulting firms evolve into technology companies rather than people-driven companies, their ability to command premium pricing could erode. The transformation required to stay competitive in a more technology-enabled future undermines the foundation of its historical advantage. The traditional value proposition, smart generalists from elite institutions, may no longer be enough on its own.
Could they pivot? Perhaps. But large, established organizations aren’t typically structured for rapid innovation. Moving at startup speed is difficult, and competition for top technical talent is fierce. A more realistic strategy might involve shifting further into implementation work, where the human element is harder to automate.
The Disruption Is Already Here
Of all the projects consulting firms conduct, commercial due diligence workflows are some of the most repetitive and standardized, making them particularly exposed to new operating models or technologies that challenge traditional approaches. Much of this work involves structured research and pattern-recognition—areas where emerging tools are beginning to augment traditional consultant-led methods.
We’re seeing parallel disruption in adjacent fields. Harvey AI, valued at $8 billion around three years after its founding, is transforming legal due diligence, illustrating how even long-established professional service categories can experience rapid shifts when new technologies enter the market.
New approaches are also beginning to appear in commercial due diligence, some driven by shifts in technology and others by changing expectations from investors.
Even with rapid progress, adoption in private equity won’t be automatic. Deal teams are time-starved, highly process-driven and deeply risk-averse in crunch time. They’re also used to white-glove support from top consultancies, so replacing that with a self-serve AI tool is a meaningful behavioral shift—even as the sector starts to warm up to AI.
And AI still has limits. If not configured and governed carefully, hallucinations and subtle errors remain real risks. More importantly, the “so what”—the deep, differentiated insight that wins billion-dollar deals—is still hard for AI to deliver consistently. That’s why, for now, the winning model is human-in-the-loop: AI for speed and coverage, experts for judgment, accuracy and a white-glove client experience.
The partners at big consultancies know disruption is coming. The question is whether they can respond quickly enough, and whether their organizations will disrupt themselves before someone else does.
What This Means For Private Equity
For private equity funds, this transformation isn’t just about cost savings. If insights can be produced more efficiently, investors can evaluate more opportunities with greater depth and in different ways than before. They can move faster than competitors, gaining critical advantages in auction processes. The long withstanding tradeoff between speed and depth may start to narrow as new approaches gain traction.
Taken together, these dynamics point toward an industry in transition, with firms increasingly examining how diligence practices might evolve.
The commercial due diligence industry appears to be entering a broader period of change. Like many sectors before it, a mix of entrenched incumbents, structural inefficiencies and emerging technologies has created ideal conditions for disruption. In 2000, Blockbuster famously passed on the chance to buy Netflix for $50 million. By 2025, there was only one Blockbuster store left, and Netflix offered to acquire Warner Bros. for $72 billion, a symbolic reversal of power shaped by the rise of the internet. A similar recalibration may unfold here as well; this time, white-collar jobs could be on the line.
This article first appeared in Forbes Business Council, where Frederik is a member.
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