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Private Equity Buyout Funds Focus on IT Sector, Report

March 15, 2018, 08:00 AM
Filed Under: Technology

Private equity buyout funds are increasingly becoming involved in the information technology sector, particularly as some technology companies become larger and more mature, Preqin reported. Sixteen information technology-focused buyout funds closed in 2017, equalling 2015’s record, and raised $40 billion – more than twice the previous record of $17 billion registered in 2013. The average size of IT-focused private equity buyout funds in 2017 was $2.5 billion, and this includes two funds of more than $10 billion each. At the same time, deals in information technology account for a rising proportion of buyout- backed deal numbers. In 2017, 823 deals in information technology comprised 19% of the global number of private equity buyout deals, a record high, and in 2018 YTD they account for 23%. Information technology also accounts for a significant proportion of total deal value – 19% in 2017 – but this does not approach the all-time high of 33% recorded in 2015.

“Private equity buyout involvement in the information technology sector is growing. Although there are some longstanding buyout firms which focus on the IT industry, fundraising and investment in the sector has traditionally been dominated by venture capital and growth funds," said Christopher Elvin, Head of Private Equity Products. "This perception has been changing in recent years, though, with increasing numbers of buyout funds focussing on making investments in this industry. 2017 in particular marked a banner year for buyout funds focusing on IT: funds closed through the year raised more than twice the previous record capital total, and deal activity in the sector accounted for almost one out of every five deals announced for buyout firms."

This level of activity speaks to the high investor appetite for information technology investments, spurred by rapid developments in computing and software technology that have seen increasing numbers of IT companies become large and mature enough to be viable private equity buyout targets. However, with so much competition for these deals valuations are high, and private equity fund managers must compete with corporate and retail investors that are also becoming more active in the sector. Record fundraising is a mark of confidence, but fund managers will have to effectively deploy that capital in order to maintain the current appetite.

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