Corporates open doors for PE exits

Contact: Scott Denne

After a dry spell in 2017, strategic acquirers have come pouring back into the tech M&A market, printing larger deals and paying higher prices. In doing so, they’re delivering a disproportionately high amount of exits for private equity (PE) investments.

According to 451 Research’s M&A KnowledgeBase, strategic acquirers have spent $19.6bn so far this year to buy tech assets out of PE portfolios. That’s up from $8bn through May of last year and more than the same period in any year since 2002. The volume of such deals has risen as well, yet soaring valuations play an outsized role.

Among the 10 largest sales of PE-backed companies to strategic acquirers this year, six have traded above 5x trailing revenue. At this point last year, only two such transactions surpassed that mark. Strategic buyers appear willing to pay more than in the past, both in terms of multiple and check size. Take Adobe’s purchase of Magento (a Permira Funds portfolio company) earlier this week. In that deal, the acquirer paid 11x trailing revenue – an organizational record and more than twice the median multiple for an Adobe purchase.

In other cases, infrequent buyers are making remarkable acquisitions. TransUnion, for example, has upped its deal-a-year pace with six purchases in the past 12 months, including the $1.4bn pickup of GTCR’s Callcredit in April – its biggest-ever acquisition. Likewise, healthcare software vendor Inovalon Holdings moved past printing the occasional tuck-in with the $1.2bn acquisition of ABILITY Network from Summit Partners in March.

The trend aligns with the predictions for the PE exit environment in the M&A Leaders’ Survey from 451 Research and Morrison & Foerster. In that April survey, respondents overwhelmingly predicted an increase in PE exits via strategic acquisitions, with eight times as many respondents predicting an increase as those anticipating a decrease. Indeed, more foresaw an uptick in strategic exits than any other avenue we asked about (secondary sales, IPOs, reverse mergers and bankruptcy).

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