BackPrivate equity buyout deals in technology set for record high
Tech-focusedprivate equity is a major industry, with funds holding more than half a trillion dollars in AUM at the end of March 2018
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Mumbai: Private equity (PE) funds are set to make more buyout investments in the technology sector in 2018 than any other previous year, according to a report from global alternative assets data tracker Preqin. As of November, there have been 1,079 buyout-backed technology deals announced globally, worth $71 billion, approaching the record of 1,096 set in 2017.
The number of deals has steadily risen each year since 2009, although the value of these deals peaked at $177 billion in 2015, driven by the $67 billion merger of computing and storage firm Dell with EMC.
Technology-focused private equity is a major industry, with funds holding more than half a trillion dollars in assets under management at the end of March 2018, the report said, adding that the sector has almost doubled in size in the last five years.
This momentum is unlikely to slow in the near future, said Preqin, adding that fund managers focused on the technology sector currently hold a record $190 billion in dry powder ready to be deployed, and fund-raising in recent years has been consistently strong, with more than $70 billion raised in each of the past three years.
“Private equity firms focusing on technology is not a new phenomenon, but it is striking how much the sector has grown in recent years. In the current fundraising environment, it seems unlikely that the flow of capital will slow in the near future, while the consistent year-on-year rise in the number of deals announced shows the sector has momentum. This may, in part, speak to the ubiquity of technology, which sees an ever-increasing number of potential investment opportunities available in the sector," said Christopher Elvin, Preqin’s head of private equity.
So far in 2018, the sector has seen 286 tech-focused private equity funds achieve a final close, raising a total of $68 billion. This brings the average fund size to $238 million, the largest ever for tech-focused PE funds, the report said.
A key trend in the tech buyouts space is also that add-on deals are accounting for an increasing proportion, comprising 42% of the deals made as of November.
In private equity, add-on deals generally refers to an acquisition which adds value to the PE fund’s existing portfolio company or platform. On the other hand, public-to-private transactions are on the decline, making up less than one percent of deals this year.
“We have seen an increase in the number of add-on deals in the tech space, suggesting a growing prevalence of buy-and-build strategies as firms compete to provide scale and capture market share," said Elvin.
Strong interest in the sector has seen assets under management of technology focused PE funds reach a record high of $569 billion, the report added.
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