The trending private equity investment sectors for April 2019 are highlighted below with a few example transactions.

Medical device companies often provide two attributes highly valued by private equity firms – high margins and good growth metrics. It’s no surprise then that we noticed a trend of private equity firms investing in Medical Device companies. Today, we explore this trend across a 20-year horizon (for platform investments).

Last month, we commented on private equity firms investing in IT security companies. Expanding on that, this study explores the overall trend of PE firms investing in Cyber, Internet or Data security providers. This is a significant growth market, given every industry’s increased reliance on IT, software and data, coupled with the devastating effects of a security breach.

Private Equity Investment Trend – Cyber Security

The chart below shows the number of private equity investments in cyber security companies (excluding add-on investments) over the last 20 years.

To be clear, I have only included security as it relates to IT, software, data, etc. and not surveillance, home security systems nor related companies that provide physical security as a service.

We have previously shown the meteoric rise in private equity backed Software-as-a-Service (SaaS) companies. This post takes a closer look at these SaaS companies and explores the end industries they serve.

Private Equity Investments in SaaS Companies Over Time

The chart below shows the number of private equity platform investments in SaaS companies by year (I excluded add-on investments). As expected, there is a steep upward trend, although it should be noted that Q1-2019 (with 15 platform acquisitions) was not on pace with Q1-2018, which had 20 platform acquisitions in the SaaS space.

Caveat – many, if not most, SaaS investments are still earlier-stage venture capital investments, which we do not track. The chart below therefore only includes platform acquisitions by private equity firms.

The trending private equity investment sectors for March 2019 are highlighted below with a few example transactions.

While we often think about investment banks being large-scale entities, the truth is, most investment banks are quite small.

Pulling the number of deal makers per firm from our M&A Research database at Private Equity Info, I found the median investment bank has only four deal makers. Said another way, half of the investment banking firms have 4 or fewer deal makers.

Further, 90% of the investment banks have 12 or fewer deal makers.

The histogram below shows the breakdown.

A member of our research team pointed out an investment trend she has noticed in recent years – private equity firms investing in businesses that cater to health-conscious individuals. This includes investments in healthy lifestyle brands, organic food companies and companies that generally market their products as “better-for-you”.

The best way to illustrate this is with a few examples in each category:

We reviewed all private equity platform portfolio company acquisitions in 2018 and categorized them by industry. The chart below shows the top 25 industries of interest for private equity.

Four industries stand out, representing nearly a third of all PE deals:

1. Healthcare
2. Software
3. Manufacturing
4. Business Services

The trending private equity investment sectors for February 2019 are highlighted below with a few example transactions.

We have previously reported that private equity, as an industry, is moving down market, increasingly investing in smaller deals. The question is, what company size ranges attract PE firms? In other words, how small, how big and are there any sweet spots in terms of preferred portfolio company size for new platform acquisitions?

The Data

Compiling data from www.PrivateEquityInfo.com, the charts below show the platform acquisition criteria metrics for the private equity firms in our database.

To simplify, each chart shows the minimum requirements for each metric (for example, minimum revenue, min EBITDA, etc.). We also have data on the maximum range for each metric, but I will group those together for a later study. In other words, this study is about the minimum deal size requirements for private equity firms.

To be clear, this data is not based on transaction comps, but on the stated, desired range for platform acquisitions. (Note: we only record the size preferences for platform investments because there are often no minimums for add-on investments).

Minimum Revenue

• 60% of PE firms will look at deals with revenue less than $10 million.
• 88% of PE firms will look at deals with revenue less than $25 million.