Private equity firms are setting records as they place bets on technological revolutions in sectors ranging from finance to health care.
Firms have spent $80 billion acquiring companies in the global technology sector this year, according to data compiled by Bloomberg. That’s an all-time high for a quarter and already up 141 percent on this point in 2020, which went on to be a record year for such deals.
This month alone has seen Thoma Bravo ink a $3.7 billion acquisition of fintech outfit Calypso Technology Inc. and Ontario Teachers’ Pension Plan agree to take a majority stake in Mitratech, a provider of legal and compliance software, in a $1.5 billion deal.
In Europe, TA Associates said it would take over Dutch enterprise software firm Unit4 NV in a $2 billion-plus transaction, while one of Insight Partners’s portfolio companies bought data management group Dotmatics Ltd. for as much as 500 million pounds ($690 million). Earlier this year, Montagu Private Equity agreed to acquire U.K. software developer ITRS Group Ltd. for about $700 million.
Closer to home, Houston-based treasury management business HighRadius Corp. completed a $300 million funding round that valued the company at $3.1 billion. The funding, announced last week, was co-led by Tiger Global Management and D1 Capital, with participation from ICONIQ Growth and Susquehanna Growth Equity.
Buyout firms are flush with investor cash and are being drawn to startups helping companies to reinforce their businesses following the impact of the COVID-19 pandemic, according to Chris Sahota, chief executive officer at tech-focused advisory boutique Ciesco.
“2021 will be a time of reinvention for many companies and digital technology is driving that, so the private tech market is booming,” he said. “After last year’s turbulence, businesses want to be agile and they have started to future-proof their operations.”
Adding another element of competition for private equity firms chasing deals in the sector is the proliferation of special purpose acquisition companies. SPACs raise equity to fund takeovers of private companies and have been drawing in record amounts of investor capital. Backed by financiers and moguls from across industries, many are targeting tech deals.
Among the most sought after assets are software firms, which account for $49 billion of companies acquired by private equity groups in the tech sector this year, the Bloomberg data show.
Elsewhere, growth capital continues to flow into tech startups, driving valuations. This month the payments processing group Stripe Inc. became the most valuable U.S. startup at $95 billion, following fresh funding from the likes of Sequoia Capital. Cybersecurity platform Snyk Ltd. has seen its valuation quadruple to $4.7 billion since the start of 2020.
Dizzying prices of tech companies in the public markets, meanwhile, have made take-privates harder to pull off and led to fears of a new sector bubble two decades after the dot-com crash. But Nandan Shinkre, managing director and European head of technology at Jefferies Financial Group Inc., doesn’t see an immediate shift in momentum.
“I don’t anticipate a correction in equity valuation for good quality assets,” he said. “We now have more international interest than ever before in European tech companies, which shows how global the pool is. I believe this trend is here to stay.”
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