Technology investments have significantly outperformed other private equity buyouts since the recession, according to data from investment decision platform CEPRES.
Deals in the sector, which includes computer hardware, telecoms and internet companies, were on average sold for an enterprise value of 11.14x EBITDA. This compares with a median sale price of 9.67x EBITDA for non-tech deals.
Technology investments also achieved a 26.3 percent gross deal mean internal rate of return over the period, compared with 17.6 percent for other deals.
Tech sector companies reported a median 8.6 percent compound annual growth rate for EBITDA over the holding periods, almost double the 4.71 percent for non-tech companies.
“Technology investments really now address every industry, and that can also potentially disrupt any industry,” Nils Rode, chief investment officer of Schroder Adveq, told Private Equity International. “In terms of value creation most of these deals have strong growth, but also take value away from more traditional businesses. These business models have very attractive characteristics, because they tend to be very scalable and very capital efficient, especially everything that is related to software, which is one of the key drivers of the strong performance of technology investments overall.”
The increased pricing for technology is supported by higher equity component in the acquisition finance, with a median equity to EBITDA ratio of 6.31x at entry for tech, compared with 4.45x for other deals. This offers “some protection from de-leveraging pressure in the event of future capital markets stress”, according to CEPRES.
“There was a strong increase in tech valuations in recent years,” Rode added. “We have the situation that we now have about 200 unicorns in private companies. We're at the point where technology has higher valuations and that's also an acknowledgement of the long-term growth elements.”