Tidal wave of available PE investment funds spurring unprecedented technology deal spree

Capital availability and economic recovery are driving record PE deal volumes

Last year’s record volume of technology M&A activity has been fuelled by a tidal wave of private equity (PE) money. Given the large amount of global PE investment capital waiting to be deployed, tech-focused investment bank ICON Corporate Finance predicts this trend will continue and says that it is an opportune time to consider a PE deal.

Yet, to many technology entrepreneurs, private equity remains a poorly understood concept when it comes to capital options. In its recent insights report, ICON aims to clarify understanding, bust some of the myths around private equity, and shed light on what it takes to secure a successful private equity transaction.

Last year, over one third of all technology exits in Europe was private equity funded – an increase of 38% on 2020, and almost three times as much as in 2015. Recent examples in Europe include TA Associates’ $2 billion-plus acquisition of the Dutch enterprise software firm Unit4 NV, as well as the majority buy-out of Irish Fintech unicorn Fenergo by PE funds Bridgepoint and Astorg.

Predicting further investment growth in the sector, ICON cautions that businesses looking for funds need to get investment fit first to compete for premium deal outcomes.

Its ‘Tech Private Equity Demystified’ report, released today, not only outlines common principles that businesses looking to exit need to be aware of, but also provides advice to maximise the probability of success in a PE transaction and forms the basis for strong future performance.

Amongst its findings, the report reveals that:

• The number of private equity led technology deals has almost tripled since 2015, with over one third of all technology company sales now being snapped up by PE investors rather than corporate acquirers – the fastest pace since the financial crisis
• Growth capital and buy-out firms have never faced more competition as significant numbers of funds actively seek tech opportunities in Europe, creating a sellers’ market for high-quality businesses

The report says top of an acquirer’s list will be a high-quality management team with a cash-generative and recurring revenue business models. ICON explains:

• A high-quality, fully committed, and trustworthy management team that can demonstrate detailed understanding of the business, customers and markets, is the cornerstone of every PE deal
• Growing recurring revenues with predictable and scalable profit streams that can support increased debt levels, need to be backed up by a detailed pipeline and a credible and ambitious business plan
• Niche, or strong market positions with barriers to entry, defensible IP, scalability, and potential for operational improvement are also fundamentals in securing private equity.

But before businesses jump on the private equity trail, report author, Florian Depner, urges organisations to adopt an eyes wide open approach. He comments: “There are considerations for shareholders, the company, and its management to bear in mind when pursuing a private equity transaction; from financial aspects to management, governance, and cultural matters of a deal. You need to be certain that the fit is right for both your business and for prospective PE houses, and that your business is ready to step up the pace and embrace change at every level.”

Using experienced and trusted legal and corporate finance advisers is a key component of success, according to ICON. It helps to present the business in the right light, provides support in managing and navigating the process, and it assures that the best possible deal terms are achieved.

Read the full ‘Private Equity Demystified’ report here