As we reported in our year-end review: Top 10 Industries for PE Platform Investments in 2020, Software was the #1 industry of interest for private equity firms in 2020, as a percentage of all PE platform acquisitions.
The graphs below show the steep increase in private equity acquisitions in both Software and SaaS companies.
While private equity firms acquired considerably fewer companies in 2020, PE investments in healthcare, as a percentage of total PE platform acquisitions, increased significantly in 2020, now pushing 9% of total PE platform acquisitions.
Private equity firms are increasingly interested in scalable companies with lower CapEx requirements. Consequently, private equity acquisitions of manufacturing companies has steadily declined as a percentage of the total number of private equity platform investments.
Before the era of personal computers, companies used “Mainframes” for large centralized computing. In the 1970s and ’80s, individual users could access the Mainframe from the terminal on their desk. The rise of the personal computer placed the computing power and storage on our desks. Hence, the term “desktop computer”.
In a sense, cloud computing is a return to the Mainframe style of computing. That is, accessing remote resources (servers, databases, digital storage capacity, software, etc.) over the internet through the terminal of our personal computers.
By sharing large pools of resources, cloud computing offers advantages of reduced cost, increased scalability, massive computing power, and greater reliability.
Cloud computing also enables flexibility with remote work practices, a common theme in 2020. This general transition to cloud computing coupled with the accelerated shift to remote work has created a surge in the already-growing, global cloud computing industry.
While there are many private equity investments in companies that offer cloud-based, SaaS solutions, surprisingly, we do not see many recent private equity investments in the pure cloud computing space.
The PEI M&A Research Database shows 481 private equity platform transactions in medical device companies:
Of the 185 current investments in medical device companies, the most active private equity firms for platform investments are:
Private equity platform investments in Software-as-a-Service companies increased significantly in 2020YTD as a percentage of all PE deals. Many SaaS companies have been less negatively impacted by the economic impacts of the coronavirus compared to other industries, both in terms of continued demand for their product or service as well as the agility to continuing operations, working from home. In many cases, SaaS companies have benefitted by the sudden change in industry dynamics.
Private equity platform investments in technology companies increased significantly in 2020YTD as a percentage of all PE deals. This is likely an influence of Covid-19, as private equity firms continued to close new investments in technology companies compared to the collective “pause” the PE firms placed on other industries.
Private equity investments in the healthcare sector, as a percentage of total PE platform transactions, have effectively doubled over the last 20 years.
Historically, manufacturing was the predominant industry of interest for private equity acquisitions. However, as PE firms increasingly looked for more scalable companies with lower CapEx requirements, over time, manufacturing acquisitions declined as a percentage of the total private equity investments.
The median holding period for private equity portfolio companies is currently 4.8 years, as reported in our recently updated portfolio company holding periods study.
Given this, it is reasonable to assume that portfolio companies held five years or longer might be good candidates/prospects for an exit.
Our M&A Research Database currently shows 218 portfolio companies that will reach the 5-year holding period milestone in the month of June, 2020. A few sample companies are presented below.
Industry Trends Report
