by Scott Denne
Fortive’s $2bn acquisition of Accruent delivers the latest in a string of 10-figure private equity (PE) exits to come from strategic buyers. Corporations like Fortive, an industrial technology company, are plucking the largest tech assets out of PE portfolios at an elevated rate. Yet despite the increase, secondary exits – sales to other buyout shops – are expanding their share of PE exits.
With two-thirds of the year in the books, strategic acquirers have paid $1bn or more for 11 PE portfolio companies. According to 451 Research’s M&A KnowledgeBase, that’s the fastest pace of such acquisitions in a single year. That said, the pace of such deals is lumpy and could suddenly accelerate or decline. Before today’s transactions, two months had passed without a $1bn PE exit via a strategic sale, and a single day in May saw three such deals announced. On the day Fortive announced its purchase of Accruent from Genstar, SS&C paid $1.4bn to acquire Eze Software from TPG Capital.
In addition to the growth of large purchases, strategic acquirers are paying more for the companies they buy. Across all acquisitions out of PE portfolios, strategics have paid a median 3.7x trailing revenue, almost a full turn above last year’s prices and higher than the median multiple in any year over the previous decade. Favorable tax rates could account for some of the increase in prices from last year. Just as likely, though, the jump in prices reflects increasing competition from PE firms.
Although strategics still provide most of the total value of PE exits, secondary sales are increasing as a share of PE exits – a reflection of the bursting coffers and broader playbooks of PE funds. So far this year, secondary sales make up 40% of PE liquidity in the tech M&A market, compared with 33% last year. It’s odd that Accruent’s owner – Genstar Capital – has sold to a strategic now that those buyers make up a diminishing share of PE exit value. The facilities management software vendor traded one PE owner for another on two earlier occasions, in 2013 and 2016 – years when secondaries accounted for just one-quarter of PE liquidity.