Technology has officially infiltrated everyday life, and private equity is well aware of it — so much so that tech deals have captured about one third of U.S. private equity deal value through the first half of the decade, according to Pitchbook Data. The share spiked in 2016, with tech accounting for 44 percent of all private equity deal activity based on capital invested. In 2019, through August 30, almost 39 percent of U.S. private equity deals have been tech-related.
2018 saw 1,616 private equity deals worth a collective $223.2 billion, nearly doubling the deal count and tripling the value, according to Pitchbook.
“The growing volume of technology deals is foremost a reflection of the ability of these assets to produce outsized returns relative to other sectors, but also of the intersection of a talented innovation economy and a market flush with capital,” says Rich Lawson, CEO of private equity firm HGGC.
Firms like Vista Equity Partners, Francisco Partners, and HCCG remain extremely active in the sector. In September, Vista Equity raised $16 billion for its latest fund and bought Acquia, a tech company that makes tools for creating websites and apps, for close to $1 billion. Earlier this year, HGGC Capital purchased font and imaging technology specialist Monotype for $825 million in an all-cash deal.
As buying of tech assets grew, so has exit activity and Pitchbook expects exits to continue to rise. 2018 saw the most private equity tech exits in the last decade with 411 exits worth a total of $152 billion. Fiserv’s acquisition of First Data is the largest exit of a tech company since 2010. JANA Partners, KKR, and New Omaha were the owners.
Lage tech companies like Alphabet Inc., Google’s parent company, and Apple are gobbling up tech startups as well. Tech startups represent a whopping 62 percent of Alphabet’s M&A activity in 2018 and 2019, according to Bloomberg. Similarly, startup takeovers make up 75 percent of Apple Inc.’s announced M&A transactions over the past two years, according to Bloomberg. Apple has bought tech companies with a wide array of technology including AI, self-driving cars, and augmented reality, among others.
Seeing this success has pushed even more private equity firms to get involved in the tech industry. In September, Advent International completed fundraising for its first technology fund after just six months with commitments reaching $2 billion. The fund, Advent Global Technology, will invest in companies in the software and data sectors.
“The presence of non-traditional and direct investors, increased demand for technology assets by strategic buyers, and the use of add-on M&A in buy-and-build strategies have created a virtuous cycle of technology transactions that shows little sign of slowing down,” says Lawson.