Learn how current market dynamics are shaping PE investment in mobile technologies.
Private equity’s appetite for deals in the Technology, Media and Telecommunications (TMT) space seems almost limitless; investment activity in the sector has accounted for approximately 40% of total deal volume, and one-third of total capital invested by PE in the last five years, making it the top sector for PE investment by far. And while activity is poised to remain elevated, there are a number of important dynamics that are changing the types of investments that firms are making, and will make in the future.
PE has been an important partner in large-scale transformational deals
The last several years have been notable for big ticket transformational acquisitions of undervalued incumbent legacy software firms. With the introduction of cloud-based technologies and the steady rise of mobility, the imperative for many technology companies has been the transformation of the business model from the conventional “technology stack” to more holistic “integrated solutions.”
This transformation process required them to not only be involved with the evolutions of the technology in order to hide all the layers from the end user, but also to transform the organization of the business itself, from the way they organized their R&D and sales teams, to the way they articulated their value proposition and priced their solutions. With such a complex reimagining of the business at hand, PE’s been an important partner in the journey for many companies. And while these large scale transformation deals will continue to be important, new waves of emergent technology are increasing competing for PE’s attention.
Shift in focus from legacy transformational deals to growth deals in disruptive technologies
With themes such as cloud computing and mobility now mainstream, PE firms are focusing on the next wave of disruption – technologies such as AI and machine learning, robotic process automation (RPA), internet of things (IoT), robotics, drones, blockchain, augmented reality and virtual reality to name a few. As evidence, the percentage of PE TMT deal volume in these verticals has almost doubled over the last few years, from about 6% in 2014 to nearly 12% last year in 2018.
An important driver behind the shift is the need to digitally transform their existing portfolio. Indeed, in 2010, just 16% of PE deals in the above spaces were add-on acquisitions to existing portfolio companies. Last year, they were nearly 40%.