A WSJ Deal Journal article recently noted that buyouts by PE firms have dipped so far in 2012 they are on pace to make up barely 40% of the deal values witnessed in 2011 and 2010. For the information technology sector, however, Signal Hill’s data shows that private equity buyers have contributed the highest total enterprise value for a Q1 period since before the recession. And that’s with one week of the quarter left to go.
Year-to-date in 2012, PE buyers closed 15 transactions – flat compared to 2011 and well above the seven deals announced in Q1 2009. These 15 most recent transactions account for nearly $4.4 billion in enterprise value, the highest level since 2007. A handful of large deals this year account for the increase, such as CPA Global’s $1.4 billion acquisition by Cinven; Transunion’s $1 billion acquisition by Advent International and GS Capital Partners; as well as Quest Software’s $1.9 billion acquisition by Insight Venture Partners earlier this month. These stats do not include add-on acquisitions by PE-owned companies, a sector of the market which remains highly active.
The Deal Journal article notes that the slowdown in overall buyouts is a surprise because “private-equity investors have a multitude of reasons to whip out their checkbooks for new purchases.” That is indeed the case within the IT sector. With public equity markets on a tear (the NASDAQ Composite is up over 19% already for the year), PE firms have been more willing to spend heartily to acquire healthy, growing companies. We recently wrote about Quest Software’s acquisition, where Insight offered a 14.4% premium over the 30-day trading price and, according to recent SEC filings, a valuation of 2.2x trailing revenues and 13.1x EBITDA. Cinven noted that its acquisition of CPA Global (a global provider of intellectual property (IP) management services and software) was driven by defensive qualities and attractive growth prospects, not to mention exceptional financial performance and cash flow.
As Q1 winds to a close and the overall markets continue to rebound, we expect to see financial buyers plow even more money into the IT sector. As the Deal Journal says, there usually is a lagging correlation between firming financial markets and Monday morning deal announcements.
IT Transactions with PE Buyers, 2007-2012
*Q1 2012 as of March 23.