Outlook 2012: Tech investing

Deal activity will be robust as firms race to acquire fast-growing companies marketing the newest innovations in enterprise computing, writes Richard Lawson, managing director at Huntsman Gay Global Capital.

Deal activity in the enterprise computing sector will stay hot next year as private equity firms with unspent capital try to transact before their investment periods end, and seek out mid-sized companies with rapid growth rates.

Companies that cater to certain vertical markets in the enterprise software sector tend to be mature, fast growing private operations in which the owners are looking for a partner with deep understanding of the sector, beneficial relationships, and who will work collaboratively with management. 

The investments are decidedly not venture capital.

Companies like IBM, SAP or Hewlett-Packard have been eager for acquisitions in the space and will continue to look for deals in 2012. Add to that the growing interest of private equity firms that focus on the sector and that have unspent capital that needs to get invested before the end of investment periods, and the deal outlook for 2012 in the sector is robust.

Innovation has helped drive deal activity in the sector – think of the advent of software that runs the programmes on the mobile devices that have become ubiquitous in everyday life; or the mainstreaming of so-called “cloud” computing, allowing users to eschew the traditional brick and mortar confines of an office to store data.

These kinds of innovations were just being created a decade ago, and it took some time for companies to grow around them and mature, but the time has come; enterprise computing – serving the enterprise –whether cloud-based or on premises – is interesting again.

Firms, those already familiar with software and services and perhaps some new entrants into the sector, will be targeting fast-growing mid-size companies ripe for expansion through a combination of capital infusion and partnership with a financial sponsor.

While 2011 was a robust year for enterprise software, it appears that 2012 will be even busier for those looking to take advantage of the huge innovations taking place in technology.