IT Remains A Favorite Of PE Firms

IT Remains A Favorite Of PE Firms

IT Remains A Favorite Of PE Firms by Garrett James Black, PitchBook

As private equity activity in the U.S. has slackened, every sector has experienced a decline in overall volume of investments, barring one. Only information technology is seeing a rate of PE dealmaking comparable to that of last year, with 261 closed transactions through the first half of 2016.

Khrom Capital killed it during the first quarter, continuing its strong track record; here are their favorite stocks

Khrom Capital was up 32.5% gross and 24.5% net for the first quarter, outperforming the Russell 2000's 21.2% gain and the S&P 500's 6.2% increase. The fund has an annualized return of 21.6% gross and 16.5% net since inception. The total gross return since inception is 1,194%. Q1 2021 hedge fund letters, conferences and more Read More

Software is pervading every industry—some already view every company as a technology company, and, in a way, they aren’t wrong (although it would be more accurate to dub every company as “technology-enabled”). What’s helping drive IT’s overall resilience, however, is the relative attraction of software businesses, among other of the sector’s segments, as competition remains intense and quality targets few in more traditional areas of PE focus, incentivizing investors to diversify.

Long-time IT investors such as Thoma Bravo or Vista Equity Partners remain most notable among the cadre of active PE firms; looking at their recent high-profile investments helps shed light on what PE investors find alluring in software businesses. For example, Vista’s purchase of Solera, a company that develops risk and asset management software for automotive and property marketplaces, illustrates the natural entry point for PE firms when a given market has already undergone considerable consolidation.

Granted, firms with operational expertise and deep resources such as Vista are best placed for that particular scenario, while those focused on the middle market can target consolidation through add-ons to extant platforms as a driving strategy, much as Marlin Equity Partners has with its Changepoint acquisitions.

Note: This column was previously published in The Lead Left.

For more insights into U.S. private equity trends, you won’t want to miss our free U.S. PE Breakdown.

No posts to display