Why PE is a key player in the software economy

In this episode, our speakers explore the novelties, complexities and key trends shaping the software deal landscape.

The “software economy” is comprised of companies that sell or license software as well as software-enabled business services companies that differentiate themselves on the basis of their software.

Because a software asset is especially complex to valuate and diligence, PE firms and the advisors who serve them have transformed their talent strategy to attract a wide spectrum of operational experts ranging from serial CTOs to young entrepreneurs. A passion for technology combined with partnering experienced executives with curious young talent helps teams remain agile and responsive to rapid change.

A software asset is different from a traditional asset for three important reasons:

  • Markets are amorphous and difficult to size.
  • Revenue potential and gross margins are high; however, R&D expenditure is also high because the product is must constantly evolve to stay competitive.
  • Technical debt, unlike traditional debt, is difficult to quantify and does not appear on a balance sheet, so a PE investor may unwittingly sign up for obligations requiring significant capex.

Five trends shaping the PE/software deal landscape:

  • Role of PE: PE is shaping the software landscape by providing access to capital and focusing on building companies. 
  • Long-term value: PE is increasingly prepared to hold software assets for longer and are therefore optimizing for LTV. 
  • Growth: high valuations require PE to underwrite for growth, not solely for cash flow.
  • Hybrid deals: PE firms that were traditionally majority stakeholders are now considering minority stakes. 
  • PIPE deals: private investment in public equity (PIPE) deals are leading to cross-fertilization in management and strategy between public and privately held companies.

For your convenience, full text transcript of this podcast is also available. Read the transcript.

Presenters

Photographic portrait of Jeff Vogel
Jeff Vogel
EY-Parthenon, US Managing Director, Head of the Software Strategy Group, Ernst & Young LLP
Winna Brown
EY Americas Financial Accounting Advisory Services Private Equity Leader

Podcast

Episode 20

Duration 28m 08s

In this series

series overview
(Event List - Manual)

Why PE is a key player in the software economy

In this episode, our speakers explore the novelties, complexities and key trends shaping the software deal landscape.
Podcast

Episode 20

Duration
28m 08s

Presenters

Jeff Vogel

EY-Parthenon, US Managing Director, Head of the Software Strategy Group, Ernst & Young LLP

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

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In this episode, our speakers explore five topics that should be top -of -mind for PE executives after the US election.
Podcast

Episode 19

Duration
29m 00s

Presenters

Gerald Whelan

Private Equity Tax Technical Leader

Ray Beeman

Co-leader, EY Washington Council

What PE can do today to meet tomorrow’s ESG demands

In this episode, our speakers call on PE to adopt ESG and buy in to a broader long-term value strategy.
Podcast

Episode 18

Duration
30m 16s

Presenters

Eric Buchen

EY Global Long-term value Go-to-Market Lead

Curtis A McLaughlin

Partner, Financial Accounting Advisory Services, Ernst & Young LLP

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In this episode, our speakers help investors understand how new regulations will impact the current and future private equity ecosystem in APAC.
Podcast

Episode 17

Duration
19m 04s

Presenters

Josh Lewsey

EY-Parthenon Partner, Strategy & Transactions, Ernst & Young Limited

John Levack

Vice Chairman, Hong Kong Venture Capital and Private Equity Association

What private equity needs to know about investing in APAC: Part I

In this episode, our speakers help private equity investors understand how to navigate and set expectations in the APAC market.
Podcast

Episode 16

Duration
27m 18s

Presenters

Josh Lewsey

EY-Parthenon Partner, Strategy & Transactions, Ernst & Young Limited

John Levack

Vice Chairman, Hong Kong Venture Capital and Private Equity Association

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In this episode, our speakers explain why PE should remain optimistic about investing in the healthcare sector despite the short-term detriment of COVID-19.
Podcast

Episode 15

Duration
25m 00s

Presenters

Jeffrey M. Woods

EY-Parthenon US Co-Head of Health Care

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

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In this episode, our speakers explore why PE must embed geostrategy in order to recognize unique opportunities and drive investment decisions.
Podcast

Episode 14

Duration
25m 17s

Presenters

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader

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In this episode, our speakers explore how experience-led transformation is inspiring digitalization across the PE portfolio.
Podcast

Episode 13

Duration
25m 17s

Presenters

Sean Epstein

Senior Vice President and Global Head of SAP Private Equity & Mergers and Acquisition Programs

Winna Brown

EY Americas Financial Accounting Advisory Services Private Equity Leader