PE drives valuations
The frenetic level of private equity investment in TMT in 2017 showed no sign of slowing down last year.
The strong growth profiles and recurring revenue models of TMT assets have been a key attraction, along with the fact that many are, for the most part, economic cycle resistant. Private equity helped increase valuations for European assets across technology, media and telecoms, reflecting a strong investment appetite and a significant amount of liquidity connected to large fundraises.
B2B IT services and hosting were hot property throughout Europe in 2017 and this was a trend that continued into 2018. Clearwater International advised on four acquisitions of assets in the sector, advising: HgCapital on the acquisition of IT Relation, a leading Danish supplier of managed IT services to SMEs; BCN Group on its investment by Beech Tree Private Equity; Jigsaw24, a supplier of Apple services, on its sale to Alcuin; and Netgroup on its sale to Sentia which is backed by Dutch private equity house Waterland. Annual recurring revenue levels have been seen as a key attraction for investors, with many purchasing assets as platform investments. Success largely depends on an effective buy and build model, with the ability to integrate smaller managed services providers key.
Elsewhere, despite the political concerns surrounding Brexit, it was business as usual for private equity investments in UK software assets. With technology and automated processes still seen as key to reducing costs and improving performance across government, public sector software was particularly attractive to both domestic and international investors.
strong investment appetite and a significant amount of liquidity
US private equity house Vista invested in Allocate, a healthcare workforce management provider, with fellow US house TA Associates purchasing Datix, a patient safety software supplier. UK investor Tenzing invested in Ticketer, a bus ticketing software specialist, whilst Dutch house Waterland invested in a stake in Gas Tag, a provider of technology that helps housing and local authorities combat illegal gas fitters. With Cinven selling UK public sector software specialist Northgate to Japan based NEC at a high valuation last year, this is a market where private equity feels comfortable it can make strong returns.
In media, B2B data and analytics specialists continue to be highly sought after private equity assets. With intelligence-led decision making becoming an increasing organisational priority, the ability to deliver information in new and insightful ways is significantly valued. For instance, Clearwater International advised FPE on its acquisition of IWSR, a specialist data and analytics provider to the alcoholic drinks market.
B2B data and analytics specialists continue to be highly sought after private equity assets.
Information providers to financial services were hot assets with HgCapital investing in fund data provider Financial Express and Bridgepoint acquiring PEI Media, a provider of data and conferences for asset class investment professionals. Synova also invested in Mintec, a provider of commodity data and prices for raw materials. Proprietary data, a vertical specialism, and workflow tools and analytics capabilities are all increasingly valued.
Telecommunications and broadcast infrastructure has become an increasingly popular sub-sector for private equity investors. The demand for fast internet speed and growth in data usage alongside the emergence of 5G networks provide particularly strong growth drivers.
High barriers to entry, clear and visible cash flows, and sticky customers on long-term contracts are key attractions. Clearwater International advised Equistone on its acquisition of WHP Telecoms, a UK provider of professional and network support services to the wireless telecoms sector. In France BNP Paribas Developpement SA, SCR invested in Sogetrel, a business that designs, deploys and maintains network infrastructure. Other deals saw KKR invest in Altice France SA telecommunications tower business, PAI Partners bought a stake in UK telecoms infrastructure provider MGroup, and GCP invested in Indigo Telecom, a provider of telecoms managed project services.