Guest Contributor May 15, 2014
By Tim Dutterer
Partner & Head of Technology Practice
The Parthenon Group
Historically, the fundamental business characteristics of technology have not been a great fit for most private equity investors. But that is changing—and fast. In 2013, while the volume of overall deal activity was down 6% in the U.S., technology-related transactions grew at 14% as private equity investors and their portfolio companies closed on more than 500 technology deals. Compared to the strong tech IPO market we are currently experiencing, this may not come as a surprise. But for private equity investors looking to capitalize on opportunities that lie ahead, we’ve taken a closer look to define specific trends that will drive future technology investment opportunities.
While most of this year’s growth was due in part to technology-enabled business models not traditionally tracked as “IT investments” in industry reports, three other factors contributed to the emerging technology sector. Based on last year’s observable activity, this year’s trends appear persistent to the 2013 deal market, with strong growth across the software, services and hardware segments. Further growth is expected in some horizontal software sub-segments such as HR and data & analytics—along with a significant boost in SaaS-positioned offerings.
After recent analysis conducted by The Parthenon Group’s Technology Practice on deal activity in 2013, the following are four key areas that investors should focus on in 2014:
As the year continues to unfold, it is important to note that the broader footprint of technology-enabled business models will increase overall competition. These assets will not just gain interest among technology-specialist investors, but for private equity investors focused on pursuing strong vertical investment theses as well. Understanding both the underlying technology and end-market verticals will matter more than ever.
Parthenon, which serves as an advisor to private equity investors and management teams in the technology sector, expects these trends to persist into 2014. Identifying these key trends is just one part of our entire investment cycle. With technology executive teams, we help improve company performance through customer segmentation and analytics, sales forces strategy, pricing optimization, and growth strategy development. Our unique approach to strategic advisory services has made us a top choice for CEOs and business leaders of Global 1000 corporations, high-potential growth companies and private equity firms.