Information technology has slowly established itself as a prominent industry for private equity fund managers to invest in over recent years. According to Preqin’s Buyout Deals Analyst, there have been 3,664 private equity-backed transactions in information technology since 2006, worth a total of $345bn. The annual number of deals within the sector has increased by 119% from 258 in 2006 to 566 in 2014. As a comparison, private equity investments in infrastructure companies and clean technology are the only other industries to have recorded faster rates of growth during the same period, with a 300% and 122% increases respectively. Despite the highest number of private equity-backed information technology transactions in the period 2006 to 2015 YTD being seen last year, the aggregate value of transactions for the IT industry in 2014 ($43bn) is 12% lower than the figure recorded in 2006 ($49bn).
As seen in the chart above, since 2006, the information technology industry has witnessed a stable increase of its market share in private equity-backed buyout transactions. In 2015 YTD, information technology has accounted for 16% of all private equity-backed deals globally in terms of the number of deals. This is the highest market share recorded for this industry in the period since 2006, one percentage point higher than 2014. Similarly, private equity-backed transactions in information technology have accounted for a record 19% of the aggregate value of all private equity deals, matching the 2013 figure. This represents a seven percentage point increase from last year.
Private equity-backed buyout deals in information technology have already reached an aggregate value of $52bn this year, compared with $43bn in the whole of last year. This is partly due to the announced $8bn buyout of Veritas, a software company, by Carlyle and GIC. This deal denotes a growing enthusiasm among private equity fund managers to invest in software companies, a trend that has been witnessed since 2010. Indeed, there were four times as many private equity-backed investments in software companies in 2014 (265) as there were in 2010 (65). As of 2015 YTD, more than half of private equity-backed investments within the information technology industry were made in software companies (53%). Similarly, software companies have contributed the most to the aggregate value of information technology transactions, totalling $31bn (59% of aggregate value) in 2015 YTD. This may be explained by the fact that five of the 10 largest private equity-backed buyout deals in the information technology industry so far this year have been in software companies.
Geographically speaking, North America is home to 64% of the total number of deals in information technology in 2015 YTD, a six percentage point increase from last year. Deals in the region have also contributed the largest amount to aggregate deal value, at 78% of the global total in 2015 YTD, an 18 percentage point increase from last year. Europe trails with 17% of the total deal value, followed by Asia representing just 4%.
The analysis of deal sizes within the sector reveals that while small cap deals have been in steady decline since 2012 (from 86% in 2012 to 61% of all information technology deals in 2015 YTD) mid cap ($250-999mn) and large cap ($1bn or more) deals are becoming increasingly prominent among private equity fund managers. Mid cap deals in particular recorded a 16 percentage point increase between 2012 and 2015 YTD.