Private equity firms move fast to snatch public tech companies

Jun 17, 2020 | News

Technology companies are spending less and less time on stock markets, as private equity firms, armed with a record amount of dry powder, move fast to take them private.

The median time from initial public offering to buyout since the financial crisis has narrowed to around six years, according to a new study by data provider PitchBook. At the smaller end – for deals worth $400m to $1.25bn – the time to buyout nearly halved from 12.2 years since 2015. Meanwhile, for companies worth between $1.25bn and $4bn, the median time to being taken private fell from 9.8 years to 6.4 years over the same period.

Turning their focus more towards growth, private equity firms have increasingly targeted fast-growing public tech companies in recent years.

“The revenue growth profile has risen for tech take-privates in recent years while operating margins have fallen,” the authors of the report wrote. “This is likely a byproduct of PE firms opting to purchase more nascent and growth-oriented companies, focusing less on profit margins and debt capacity.”

Notable deals last year include the $3.8bn takeover of cybersecurity business Sophos by Thoma Bravo and the $5.4bn takeover of Tech Data by private equity firm Apollo.

The trend is set to continue, with PitchBook highlighting a number of potential buyout targets. These include security-focused companies such as SecureWorks and A10 Networks, education software providers like Rosetta Stone and K12, as well as stock photography company Shutterstock and crowd-sourced reviews website Yelp.

“We see security-related companies continuing to be a trendy target as tech-focused GPs roll up disparate offerings to try and create multifaceted offerings while riding the growth curve for the industry,” the authors noted.

Source: PeNews & Pitchbook’s Analyst Note

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