Answer

Article Title and Date of the Article

Private-Equity Deals for Information Technology Soar as Companies Modernize Infrastructure

The Wall Street Journal February 12, 2021.

Summary

The article centers on how investors perceive the increasing demand for IT services in retail, hospitality, and healthcare among other sectors. According to the article, private-equity investments in technology increased in the last months of 2020 as investors opted to take advantage of the increase in corporate IT cost (Angus). The article touches on various fields of interest including everything ranging from inventory-management software to customer-service applications.  

Association to Specific Chapter Material and Concepts

1.0 Private-Equity, Technology Investors, Digital Tools

The article advocates that technology investors are drawn by enhancing demand for digital tools in healthcare, retail, and hospitality among other fields. 

Concepts

Private Equity

Private equity is described as an alternative investment class that incorporates capital that is not listed on a public exchange (Angus). Private equity consists of revenue and investors that directly invest in private organizations, or which participate in buyouts of public institutions, resulting in the delisting of public equity.

Technology Investors

Individuals investing specifically in technological development.

Digital Tools

Digital tools include websites, programs and online resources that make duties easier to accomplish (Angus). These can be accessed in a web browser without being downloaded and can be accessed at work, school and at home.

Reasons for Choosing this Article

This article was selected since it provides vast information about how Private-Equity is investing in technological development. The article highlights how investors are considering applying technology in different fields and shows the amount spent by different investors in improving their technology to modernize infrastructure. 

Important Points or Lessons Learned from this Article

For private-equity organizations, investing in IT by firms across the economy provides a significant indicator of uninterrupted value. The driving power in IT investing by organizations is likely to enhance deal making in the coming times. Moreover, various IT organizations can benefit from economies of scale and sophisticated management.

Work Cited

Angus, Loten. “Private-Equity Deals for Information Technology Soar as Companies Modernize Infrastructure.” The Wall Street Journal. Feb. 2021. https://www.wsj.com/articles/private-equity-deals-for-information-technology-soar-as-companies-modernize-infrastructure-11613176798

Full Copy of Article

Private-Equity Deals for Information Technology Soar as Companies Modernize Infrastructure

By Angus Loten

Feb 12, 2021

Private-equity investments in technology soared in the final months of 2020 as investors sought to take advantage of a rise in corporate IT spending.

Investors spent $65.17 billion last year on 2,138 private-equity deals with U.S.-based information technology companies, down from $72.47 billion over 2,007 deals in 2019 but far outpacing investments in any other sector, according to market research firm S&P Global Market Intelligence.

Nearly half of that spending came in the fourth quarter, which saw $31.73 billion in investments, compared with $11.22 billion in the previous quarter and up more than 90% from the same period in 2019, the research group said.

The amount spent on IT investments handily beat the next closest sector, healthcare, which drew in $9.26 billion in private-equity capital between October and December, the research group said.

Although the number of private-equity deals inched down in the closing months of the year, higher-priced acquisitions kept total spending on IT companies roughly on par with 2019, despite a slowdown in the early months of the coronavirus pandemic, the research group said. S&P Global Market Intelligence includes announced and closed late-stage venture-capital deals as a subset of private equity.

For investors, much of the perceived value in the information-technology sector comes from the pressure many businesses face to modernize their aging IT systems. This has become particularly acute in the wake of the coronavirus pandemic, which exposed weaknesses in areas such as supply chain, fulfillment and customer service, analysts say.

The pandemic spurred chief information officers, among the primary customers of these technology companies, to redraw corporate IT strategies to cope with changing markets. These moves include a broader shift to cloud computing, automation and data analytics, according to chief information officers.

Thoma Bravo LLC in December announced a $9.6 billion acquisition of software and data analytics company RealPage Inc., marking the year’s largest deal.

Gartner Inc. expects world-wide spending on enterprise IT to grow 6.2% this year compared with 2020, to $3.9 trillion, the IT research and consulting firm said in a report last month. Spending is expected to be led by enterprise software, which is projected to grow 8.8% this year to roughly $505 billion.

“The cloud market is on the threshold of a major expansion,” said Platinum Equity Chief Executive Tom Gores. In December, the firm acquired Ingram Micro Inc., a cloud-based IT distributor and supply-chain management provider, for roughly $7.2 billion.

Mr. Gores said his firm saw Ingram Micro as a powerful platform with multiple ways to grow, given the high demand for public cloud infrastructure and new technologies, such as managed services, where companies turnover tasks such as cloud migration, maintenance and optimization to third-party tech firms.

“As we come out of the pandemic, this will be a crucial period for companies adapting to these new technologies,” Mr. Gores said.

Another private-equity firm, London-based Vitruvian Partners, last week reached an agreement to acquire a majority stake in Dutch internet and cloud-access provider Expereo BV. Irwin Fouwels, Expereo’s chief executive, said the move would help the company capitalize on opportunities in the global network and cloud connectivity industry.

Scott Denne, senior research analyst at 451 Research, a research division of S&P, said private equity has been a steadily growing presence in the tech merger-and-acquisition market for the last decade.

Private equity today accounts for roughly one in every three tech acquisitions, up from less than 10% a decade ago, he said. “As many tech- and software-focused private-equity firms have rung up large returns, more money has poured into the space,” Mr. Denne said.

Glenn Mincey, the national sector leader for private equity at professional services firm KPMG LLP, said tech investors are attracted by an increasing need for digital tools in retail, healthcare, hospitality and other sectors. Areas of interest include everything from inventory-management software to customer-service apps.

At the same time, he added, many IT companies could benefit from economies of scale and sophisticated management: “All of which seem like a perfect match for the private-equity playbook.”

For private-equity firms, spending on IT by companies across the economy offers a solid indicator of continued value.

The momentum in IT spending by companies across the economy is likely to fuel deal making in the year ahead, analysts say.

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