Private Equity Reasserts Leadership in IT Deals
Key Highlights
- Private equity (PE) firms are leading the charge in IT deal-making, driven by favorable financing conditions, the strategic importance of technology, and the rise of recurring revenue models.
- PE now comprises about one-third of Bain & Company’s global business, having grown eightfold in the last 15 years.
- The availability of dry powder and favorable financing conditions have enabled PE firms to pursue larger and more complex deals, driving up valuations and competition for assets.
- The rise of recurring revenue models in IT businesses has made these assets more attractive to PE investors.
Intense Competition for IT Assets
The current state of IT deal-making is characterized by intense competition for assets, with PE firms leading the charge. According to data from PitchBook, a leading provider of detailed insights on financial sponsors and companies, PE firms are leveraging their expertise and resources to drive growth and innovation in the IT industry.
This surge in PE activity is fueled by the increasing importance of digital transformation and cloud computing in today’s market. As businesses across industries seek to enhance their technological capabilities, PE firms are well-positioned to capitalize on these opportunities.
Historical Context and Market Dynamics
While the PE sector has experienced previous waves of activity in the IT space, such as the mid-2010s boom, the current environment is distinct due to the availability of dry powder and favorable financing conditions. PitchBook’s data highlights that these factors have enabled PE firms to pursue larger and more complex deals, driving up valuations and competition for assets.
According to Battery Ventures, a technology and software-focused investor, the firm’s investment staff works together globally to evaluate and support potential investments, leveraging their expertise in the IT sector. This collaborative approach has allowed Battery Ventures to navigate various market cycles and capitalize on emerging opportunities.
Key Drivers of PE Dominance
Several factors are contributing to PE firms’ leadership in IT deals. First, the availability of dry powder, which has increased significantly in recent years, has provided PE firms with the necessary resources to pursue ambitious deals. PitchBook’s data highlights this trend, underscoring the financial strength of PE firms in the current market.
Additionally, the rise of recurring revenue models in IT businesses has made these assets more attractive to PE investors. As businesses shift towards subscription-based models, PE firms recognize the potential for stable cash flows and long-term growth.
Furthermore, the strategic importance of technology in today’s market has driven PE firms to invest in IT companies that can provide a competitive edge. ICG, a global alternative asset manager, acknowledges this trend, noting that its platform allows it to invest across the capital structure and create value through cycles, including in the IT sector.
Notable Deals and Expert Opinions
Recent high-profile IT acquisitions by PE firms, such as Thoma Bravo’s investments in software companies and Salesforce’s acquisition of Slack, demonstrate the ability of PE firms to identify and capitalize on opportunities in the IT sector.
Industry analysts predict that PE activity
