Tech PE Deal Flow During COVID
Can anyone in the tech PE space shed some light on how deal flow is looking right now? On the one hand, the general halt in M&A activity makes me think that PE would be hit hard as well and spend more time focusing on salvaging PortCos. On the other hand, seeing Thoma and SLP raising these massive funds makes me think otherwise. Are tech PE shops just getting in at super low valuations now, and hoping to scoop up some of these struggling companies?
Would be curious to hear what's going on here, and what the outlook is like for the next few years in tech PE.
cant touch on this from the fund side, but given I work in a tech portco of a PE fund, I can share the other perspective.
we have been approached by a few potential companies in the space looking to be acquired for cheap, however these firms where horrible & hold on for their lives. basically looking to sell their client list & dissolve the firm. any established firm that is doing well is not going to sell any % in their firm. on the flip side, any company that is trying to sell now is doing poorly & needs to be bailed out.
on the tech side of things, most companies are holding strong & riding everything out until a more stable market arises.
would be interested in hearing the funds side of things.
from generalist fund perspective - tech is generally performing better than other sectors, particularly saas businesses with a high % recurring revenue. portco assets will be performing better relative to other sectors and funds will look to invest more in tech businesses during this time of uncertainty. Haven't seen a huge change in valuations. If anything, more attractive companies will pause their processes and wait for better market conditions so the deals that do come to market may be less attractive / have some reason why they need a transaction now.
Anecdotally, from a LMM/MM perspective ($10-$100M rev), I've seen valuations stay pretty high for good businesses. A lot of firms are eager to put capital to work and I've seen good companies stick to their guns on their pre-covid valuations.
Other than that, it's definitely been slower, I think everyone is waiting to see what will happen with Covid, so mainly paused/slower processes. The companies that are willing to take a discount probably weren't that great in the first place.
We're still trying to source, but it's tough to push the issue too much. Plus, from talking to others in the industry, even within tech, companies have been impacted. Lots of Portco fire-fighting going on.
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