Private-equity investments in technology soared in the final months of 2020 as investors sought to take advantage of a rise in corporate IT spending.
Investors spent $65.17 billion last year on 2,138 private-equity deals with U.S.-based information technology companies, down from $72.47 billion over 2,007 deals in 2019 but far outpacing investments in any other sector, according to market research firm S&P Global Market Intelligence.
Nearly half of that spending came in the fourth quarter, which saw $31.73 billion in investments, compared with $11.22 billion in the previous quarter and up more than 90% from the same period in 2019, the research group said.
The amount spent on IT investments handily beat the next closest sector, healthcare, which drew in $9.26 billion in private-equity capital between October and December, the research group said.
Although the number of private-equity deals inched down in the closing months of the year, higher-priced acquisitions kept total spending on IT companies roughly on par with 2019, despite a slowdown in the early months of the coronavirus pandemic, the research group said. S&P Global Market Intelligence includes announced and closed late-stage venture-capital deals as a subset of private equity.
For investors, much of the perceived value in the information-technology sector comes from the pressure many businesses face to modernize their aging IT systems. This has become particularly acute in the wake of the coronavirus pandemic, which exposed weaknesses in areas such as supply chain, fulfillment and customer service, analysts say.
The pandemic spurred chief information officers, among the primary customers of these technology companies, to redraw corporate IT strategies to cope with changing markets. These moves include a broader shift to cloud computing, automation and data analytics, according to chief information officers.
Thoma Bravo LLC in December announced a $9.6 billion acquisition of software and data analytics company
marking the year’s largest deal.
expects world-wide spending on enterprise IT to grow 6.2% this year compared with 2020, to $3.9 trillion, the IT research and consulting firm said in a report last month. Spending is expected to be led by enterprise software, which is projected to grow 8.8% this year to roughly $505 billion.
“The cloud market is on the threshold of a major expansion,” said Platinum Equity Chief Executive
In December, the firm acquired Ingram Micro Inc., a cloud-based IT distributor and supply-chain management provider, for roughly $7.2 billion.
Mr. Gores said his firm saw Ingram Micro as a powerful platform with multiple ways to grow, given the high demand for public cloud infrastructure and new technologies, such as managed services, where companies turnover tasks such as cloud migration, maintenance and optimization to third-party tech firms.
“As we come out of the pandemic, this will be a crucial period for companies adapting to these new technologies,” Mr. Gores said.
Another private-equity firm, London-based Vitruvian Partners, last week reached an agreement to acquire a majority stake in Dutch internet and cloud-access provider Expereo BV. Irwin Fouwels, Expereo’s chief executive, said the move would help the company capitalize on opportunities in the global network and cloud connectivity industry.
Scott Denne, senior research analyst at 451 Research, a research division of S&P, said private equity has been a steadily growing presence in the tech merger-and-acquisition market for the last decade.
Private equity today accounts for roughly one in every three tech acquisitions, up from less than 10% a decade ago, he said. “As many tech- and software-focused private-equity firms have rung up large returns, more money has poured into the space,” Mr. Denne said.
Glenn Mincey, the national sector leader for private equity at professional services firm KPMG LLP, said tech investors are attracted by an increasing need for digital tools in retail, healthcare, hospitality and other sectors. Areas of interest include everything from inventory-management software to customer-service apps.
At the same time, he added, many IT companies could benefit from economies of scale and sophisticated management: “All of which seem like a perfect match for the private-equity playbook.”
For private-equity firms, spending on IT by companies across the economy offers a solid indicator of continued value.
The momentum in IT spending by companies across the economy is likely to fuel deal making in the year ahead, analysts say.
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