Private Equity Appetite For It & Business Services Driving Deal Size, Says Hampleton Partners’ M&A Report

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Private Equity Appetite For It & Business Services Driving Deal Size, Says Hampleton Partners’ M&A Report

The latest IT & Business Services M&A market report from Hampleton Partners, the international technology mergers and acquisitions advisor, outlines how low-interest rates and favorable debt markets have made it easier for private equity firms to pick up market-leading IT businesses. PE buyers have grown their share of the sector’s M&A activity to 15 percent of all transactions in 2019, compared to just under five percent in 2014.

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PE firms armed with record amounts of capital are making big investments in the nine – or ten-digit range pushing up median deal sizes.

In 2018, the median deal size for strategic buyers was only $28 million, whereas private equity median deal size was $196 million – 600 percent more. This rift has continued to grow: in 2019, the strategic median deal size was $34 million, while the PE median deal size was $556 million – a whopping 1500 percent more.

In total, $14.67 billion was spent by private equity buyers in 2019 – an increase from the $11.85 billion spent in 2018.

Miro Parizek, founding partner, Hampleton Partners, said:

“The migration of core business services to digital and to the cloud, plus widespread implementation of analytics, digital marketing, machine learning, social commerce and more, are creating a strong demand for companies across the sector.

“Macroeconomic forces are also contributing to M&A activity, as private equity firms can now afford to buy market-leading tech companies with high growth potential, leading to larger deal sizes.”

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The outsized influence of private equity firms is shown by the $5.4 billion purchase of electronics distributor Tech Data by Apollo Global Management in November 2019.

Hampleton reported 407 IT & Business Services transactions in the second half of 2019, up from 380 in the first half of the year.

Companies in the IT Outsourced Services segment attracted the highest valuations, with trailing 30-month median multiples hitting a five-year high at 10.6x compared to 8.2x in the Integration Services segment.

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