The rise in importance of private equity in US technology M&A

2017 was not a notable year for tech M&A in the US. Global deal flow was at its lowest level since 2013 with 3,441 transactions accounting for $325 billion in value. One of the key trends was the shift from traditional buyers such as Salesforce, IBM and Oracle to private equity houses like Vista, Providence and Marlin. This is beginning to reshape the tech M&A market with major tech companies starting to see their impact on tech M&A being challenged.

One of the key trends was the shift from traditional buyers such as Salesforce, IBM and Oracle to private equity houses like Vista, Providence and Marlin.

Large strategic acquirers announced just six transactions on average in 2017, leaving space for PE firms to increase technology acquisitions at an unprecedented rate. For instance, IBM only announced five small-scale transactions in 2017 as opposed to 12 large deals in 2016 with at least one deal valued above US $1 billion.

PE firms, which are cash abundant following a 10-year bull market, accounted for one out of every four tech deals last year. They announced a total of 882 deals in 2017, twice as many transactions as in 2012. Notable deals include Vista Equity’s acquisition of Xactly Corporation for an estimated total deal value of US $564 million and Providence Equity’s acquisition of Double Verify for about US $200 million in cash, which valued the company at more than US $300 million. This marked the first time in history where buyout firms took part in almost as many tech transactions as US publicly traded companies.

Amid the rivalry among PE firms and strategic buyers, bids will become even more competitive. As a result, technology companies will have to leverage their synergistic opportunities and integration strategies to outbid PE acquirers’ aggressive strategy, which is underpinned by the most cash they have ever held.

This trend is expected to continue, and deal activity will be concentrated to a small number of fast growing technology sectors, notably software and SaaS. 40% of PE’s deal flow in 2017 came from software-related targets and SaaS continues to be in demand due to the use of a subscription based model and recurring revenue. PE firms are on pace to surpass US-listed acquirers as the top technology buyers in terms of deal volume in 2018.

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