Why private equity firms still love technology
Technology permeates dealmaking today. “Tech is, more or less, touching everything,” as the authors of The 2019 BDO Technology Outlook Survey put it.
You can see the impact of tech throughout the 2018 winners of Mergers & Acquisitions’ M&A Mid-Market Awards especially: Luminate Capital Partners founder Hollie Hayne’s scoring Dealmaker of the Year for raising a second fund to invest in enterprise software companies; and TA Associates’ winning Private Equity Firm of the Year for investing a record $2.8 billion in new portfolio companies, most of which are infused with technology one way or the other.
Among the many recent tech-related announcements that caught our eye was TA Associates and Vista Equity Partners’ investment in Aptean, an enterprise software developer focused on manufacturing customers. TA and Vista are equal partners in the deal, each investing new equity to acquire Aptean from the separate Vista fund that initially invested in the company in 2012.
TA and Vista were among 10 PE firms active in tech deals that Mergers & Acquisitions recently profiled. Also on that list was Genstar Capital, which recently closed its ninth fund at around $7 billion. The fund has raised $5.5 billion in limited partner commitments, $1.1 billion in overage capacity and $400 million from general partners and affiliated entities.
San Francisco-based Genstar ranked as the most active U.S. private equity firm of 2018, based on volume of completed deals, according to PitchBook. Genstar recently invested in Ohio Transmission Corporation (OTC), an industrial automation equipment distributor and technical service provider, from Irving Place Capital. The firm has about $17 billion in assets, focusing on the financial services, industrial technology, healthcare and software sectors. Earlier in 2019, Genstar-backed Drillinginfo bought Cortex, a software provider for the energy sector. “We believe that our thesis-driven investing model of growing and building industry leading businesses will continue to deliver superior performance for our investors,” said Genstar managing director Tony Salewski.
As PE firms pursue innovations that will drive sustainable value, technology will continue to fuel M&A. Expect to see more deals coming from a wide array of exciting new developments, including: artificial intelligence, data management, data virtualization, digital marketing, healthcare IT, industrial automation, the Internet of Things, machine-to-machine learning, payment processing, Software-as-a-Service and enterprise software.
The BDO survey, which consisted of telephone interviews with 100 U.S. tech CFOs, asked some key questions: “Will the U.S. tech sector—one of the S&P 500’s leading performers in 2017 and last year—continue to ride the wave of enthusiasm to generate exponential growth? Or will it face an economic slowdown?” The answers were mixed.
“While the U.S. economy remains strong, trade wars, tax reform, data privacy concerns, and other geopolitical tensions and policy changes threaten to shake up the sector,” wrote the authors. “Meanwhile, increasing competition at home and abroad, along with evolving customer expectations, make innovating and scaling up quickly and sustainably an absolute imperative.”