As cloud computing and video technology come more into focus, private equity firms will focus more on making acquisitions in those markets.
Cloud computing, for example, seems tailor-made for private equity investors, whose appetite for efficient, cost-effective strategies is legendary. Thoma Bravo is among the PE firms investing in the technology (for more, see Thoma Bravo & Others Bet Big on the Cloud). The firm’s $930 million purchase of cloud-based TravelClick won Mergers & Acquisitions’ 2014 M&A Mid-Market Award for Deal of the Year.
Other reasons PE investors like tech targets is their ability to produce returns, their recession-resistant nature and the fact that a slew of tech companies are finally mature enough for private equity investment. For more, see Plugging into Software.
Established PE firms that made their mark in the tech space, such as Francisco Partners, GTCR, HGGC, Silver Lake Partners and Thoma Bravo will continue to dominate the field, but newer firms are joining the ranks.
“I think you will see more spinouts now that the private equity industry is starting to get more focused,” says Devin Mathews, a founder of ParkerGale Capital. Mathews and four other partners from the technology sector team at Chicago Growth Partners founded the firm in 2014, after CGP decided not to raise a third fund. ParkerGale recently announced its first acquisition in Aircraft Technical Pubishers, a data provider for the aerospace industry. For more, see PE Firms Will Become More Specialized.
Luminate Capital Partners also opened its doors recently. In late 2014, Luminate was founded by PE veteran Hollie Moore Haynes, who had worked on mid-sized tech investments at Silver Lake Partners since 1999. The new firm recently completed its first deal, purchasing PDI, a Temple, Texas, software maker that was a carve-out from a larger company. PDI creates software used in managing convenience stores, including inventory management, petroleum pricing and labor management. Luminate generally makes equity investments of $20 million to $50 million in companies with between $10 million and $50 million in annual revenue.
Mergers & Acquisitions predicts more tech-focused PE firms to emerge.