Tech dominates dealmaking. The technology, media and telecom, or TMT, sector accounted for about 40 percent of total private equity deal volume and one-third of total capital invested by PE firms over the last five years, according to EY Private Equity. Looking forward, the next five years of M&A activity will be fueled by a whole new set of developments. As one wave of technological innovation crests, another is forming. “With themes such as cloud computing and mobility now mainstream, PE firms are focusing on the next wave of disruption — technologies such as artificial intelligence and machine learning, robotic process automation (RPA), Internet of Things (IoT), robotics, drones, blockchain, augmented reality and virtual reality,” finds the April edition of EY’s quarterly PE Pulse report.
While some of these emerging technologies have not generated significant volumes of investment activity yet, they represent compelling opportunities for private equity firms. One technology the EY report says has begun to gain traction and cause disruption is IoT. To date, investment in IoT has been selective, and primarily focused on the enabling infrastructure and more mature segments, such as real estate, smart cities, smart homes, agriculture and logistics.
However, as the deployment of 5G technology begins to accelerate, advanced IoT applications will represent significant opportunities for PE investors in emerging segments, such as connected vehicles, connected health and connected industrials, says EY. And while currently most investment has focused on opportunities in the developed markets, the rapidly growing Asia-Pacific market will offer opportunities as well. As IoT proliferates, demand for reliable connectivity will increase dramatically, leading to micro-data centers and related technology, including edge computing.
Edge computing allows data produced by IoT devices to be processed closer to where it is created, instead of sending it across long routes to data centers or clouds, according to Network World. Doing this computing closer to the edge of the network lets organizations analyze important data in near real-time, which is essential for many industries, including manufacturing, healthcare, telecommunications and finance.
Edge computing models are attractive to PE firms, EY points out. “The long-term, locked-in contracts offer a measure of protection against the macro cycle, and many have investment profiles similar to more traditional infrastructure plays, such as toll roads and ports. And growth in the sector means PE firms have the potential to deploy large amounts of capital in the space to capture current and future trends.”
For more on PE firms investing in tech, see 10 PE firms share strategies for tech M&A.