PE goes gray

As it celebrates its 25th year in business, ConvergeOne is falling again into the hands of a private equity (PE) shop. With CVC Capital Partners’ $1.8bn acquisition of the communications integration services firm, ConvergeOne joins an expanding list of tech companies landing in PE portfolios when they’re well into adulthood. As buyout firms vary their strategies to incorporate growing businesses and venture-funded startups, there’s a sense that they’re making room for younger companies. But in reality, PE tech targets keep getting older.

According to 451 Research’s M&A KnowledgeBase, the median age of a PE acquisition has risen steadily through this decade. In 2010, the typical technology vendor was 12 years old upon joining a PE portfolio – four years younger than the typical 2018 purchase. (The analysis doesn’t include corporate spinoffs, whose founding dates are difficult to pin down.) Although PE firms are buying more young companies on an absolute basis, those targets make up a smaller share of PE deals. So far this year, they’ve bought 158 businesses – one out of five PE transactions – with less than a decade of operations, while in 2010, nearly one-third were below that age.

The graying of PE portfolio companies reflects a dramatic shift in the source of deals for PE shops. Acquisitions of vendors that have already been through at least one cycle of PE ownership are accelerating at the expense of all other sources of deal flow, including take-privates, buyouts of venture-backed businesses and corporate spinoffs. Excluding bolt-on transactions, such secondary acquisitions account for more than one out of every four tech purchases by PE firms this year.

In its latest move, CVC Capital becomes the third buyout shop to own ConvergeOne. Several companies are passing from one sponsor to another for the second or third time this year. In January, Marketron was bought by its fourth financial sponsor as the radio broadcasting software business approaches its 50th anniversary. And in one of the largest PE deals of the year, Carlyle Group spent $6.7bn to become the third PE owner of Sedgwick, a 47-year-old claims management outsourcer.

PE’s expanding footprint in tech M&A naturally results in a rise in secondary transactions as more of the available targets are PE-owned. By our count, PE firms and their portfolio companies have inked almost one out of every three tech deals this year. Yet the rising age of PE-owned companies suggests that those firms aren’t replenishing their stock of potential targets as fast as they are recycling it.