Bankers tell Mergers & Acquisitions that buyer interest in tech-enabled services remains high. They anticipate strong dealflow in the second half of this year, they say.
A tech-enabled service delivers a traditional function like real estate listings or legal advice through software, hardware or the Internet.
“Tech-enabled services is a broad term,” said Scott Twibell, managing director at Lincoln International. “Most services have an element of technology. No industry is without tech-enabled services.”
Some examples of tech-enabled services in the healthcare space include Covetrus, which provides animal health technology and services. The target announced that it was being taken private by Clayton, Dubilier & Rice for $4 billion enterprise value in May. Others include Health Catalyst, Accolade, and Quantum Health owned by Warburg Pincus and Great Hill Partners.
“These companies get the margins of software and services companies,” says the banker. “They may have 60 percent growth in the top line and 50 to 60 Ebitda margins.”
“By nature, tech-enabled services businesses tend to be comparatively resilient in short-term disruptions or economic downturns,” says Byron Nelson, head of technology, media and telecom for Deloitte Corporate Finance. “Whereas customers of other industries may be able to tighten spending on their outsourced services, companies across the board have adopted tech-enabled services such that the technology has become essential to their underlying businesses.”
“Technology today is so integral to operations that it can’t simply be unplugged as a short-term cost lever when times are tough,” continued Nelson. “Organizations are using tech-enabled services as a tool to drive efficiencies and generate cost controls in other areas of the enterprise. Consequently, tech-enabled services remains attractive assets despite market concerns.”