People and capital are flowing into Austin at rates never seen before, grabbing the attention of private equity firms such as Blackstone, Thoma Bravo, and Vista Equity. Read below for more.
Between 2019 and 2021, private equity firms targeted 182 deals worth a total of $17 billion in deal value in Austin-based firms, according to data provided by Refinitiv. These are healthy numbers, however, through the first quarter of 2022 the city saw private equity target 30 deals for a value of $20 billion, twice the pace of the last three years.
Growth in Tech and Real Estate
“Austin-based companies have seen significant recent M&A activity, driven in part by the success of the city’s robust technology and consumer sectors, as well as a continued inflow of established industry-leaders relocating to Austin to take advantage of the highly-skilled workforce and attractive quality of life,” says Anthony DiSimone, CEO of Peak Rock, an Austin-based private equity firm.
“We have seen particularly strong activity in some of the industries that Peak Rock focuses on (technology, consumer and real estate) but the growth in business activity in the region expands far beyond those areas,” DiSimone adds. “We are enthusiastic about the continued growth of M&A activity in Austin, as we see continuing trends toward new-business formation and business relocations to the region.”
So far in 2022, there have been several major technology and real estate deals in the city, which counts a population of nearly one million. In April, Thoma Bravo announced a take-private deal for Sailpoint Technologies Holdings, a provider of identity security software, for about $6.9 billion. In addition, Blackstone’s real estate business acquired publicly traded American Campus Communities, a lessor of student housing communities, for an estimated $12.8 billion.
Vista Equity Partners was one of the first PE firms to identify Austin as a hotbed for deals.
“We have been part of the Austin community for over a decade and were one of the first major private equity firms to establish headquarters here,” says David Breach, Vista’s president and COO. “Like Vista, the city itself has experienced a tremendous growth in high-caliber tech businesses and talent, underscoring the firm’s belief in the transformative power of technology.”
Vista has seven active portfolio companies in the city and has backed 13 firms in total, Breach told Mergers & Acquisitions. Since 2021, Vista Equity has invested in Austin-based SchooX, Flash, Eso, and AlertMedia. Breach points out that the innovation in the city is sector-agnostic and that his firm has noticed investments across enterprise software firms within security, education, legal, sales/marketing, human resources, automotive and healthcare.
Austin is experiencing a boom in its economy and technology. But what makes the city unique lies within the influx of people and talent moving into the city. Austin has had annual population growth rate of two to three percent per year over the last decade which Bob Morse, managing partner and co-founder of Austin-based PE firm Strattam Capital Management, attributes to a couple of things.
“It is the culture of the city of Austin, not solely the economic opportunities, that has drawn so many people,” he says. “That culture fuses three big elements: arts, education, and technology. The city has a history of innovation in each. What is exciting is the new wave of capital and talent, drawn to that culture, adding a new chapter today.” Morse views the economic transformation in the city as a result of factors beyond the simple economic opportunities. He points out the unique city culture as a reason talented professionals are coming to Austin and elevating the firms they work at or invest out of. If the arts and spirit of entrepreneurship aren’t doing enough to attract population growth, the city’s lack of income tax doesn’t hurt either, he says.
“Seriously, what is unique in Austin is that the scaling up of the private equity and VC community has been more recent, relative to longer established, large financial hubs in Dallas and Houston,” Morse mentions. “I think this growth is tied to the health of the entrepreneurial and technology communities, enabled by the city’s welcoming business climate, and sparked by the cultural draw of Austin as a great place to live. I chose Austin as the city in which to found Strattam Capital back in 2014, and it’s been a terrific decision for us.”
“The city has embraced entrepreneurship and it is only going to accelerate given all the companies opening headquarters and satellite headquarters here, bringing more and more talent,” Breach adds. “In comparison to established metropolitan areas and other emerging cities in the state of Texas, UT Austin is a great example of a talent driver with the quality of local students who are staying in Austin after graduation because there is so much opportunity here.”
Firms moving to the city benefit from the growing tight-knit supportive community of founders to lean-on when building or relocating their firms.
“Experienced executives, founders and investors are supporting and guiding younger entrepreneurs who come to the city to build on their ideas and foster innovation,” Breach says.