All tech acquirers are feeling the hit from the coronavirus pandemic. But financial buyers are proving to be the more at-risk population during the current crisis.
The number of deals announced by private equity (PE) firms in recent months has slumped to multiyear lows, according to 451 Research's M&A KnowledgeBase. Including both platform purchases and bolt-on acquisitions, buyout shops printed just 61 transactions in April, down 40% from January. Early results from our data indicate that May is tracking to a similar level as the previous month.
But the true significance of the disappearance of these previously all-consuming acquirers to the overall tech M&A market shows up most clearly when we compare their activity to their rival strategic acquirers. For the most part, companies have stayed in the market, while PE firms have stepped out.
The M&A KnowledgeBase shows that in the pre-coronavirus days at the start of 2020, buyout shops accounted for one of every three tech deals. That was twice the level they held five years ago. Record amounts of investable capital held by a record number of PE firms steadily pushed their share of the tech M&A market to unprecedented heights.
COVID-19 has broken that trajectory. In just a three-month span, the outbreak and accompanying economic contraction has lopped a full 10 percentage points off of PE's share of the overall tech M&A market. Buyout shops were down to just one of every four deals in April, according to the M&A KnowledgeBase.
The sharp and severe downturn in the M&A market for PE follows a sharp and severe downturn in the market for PE's favored currency, leveraged loans. According to S&P Global Market Intelligence's LCD, the benchmark index for leveraged loans plummeted 12% in March. That stands as the second-steepest drop in the 23-year history of the index.
LCD noted that the S&P/LSTA Leveraged Loan Index rebounded nearly 5% in April, its biggest monthly advance since the market was recovering from the Credit Crisis a decade ago. Even with last month's gain, however, the index is still down 9% for the year. Until sentiment picks up in the financing market, it's unlikely that buyout shops will be able to pick up their pace of acquisitions.
Brenon Daly oversees the financial analysis of 451 Research's Market Insight and KnowledgeBase products, having covered more than a quarter-trillion dollars' worth of deal flow for both national publications and research firms.
Sheryl Kingstone leads 451 Research’s coverage for Customer Experience & Commerce, which covers the many aspects of how customer experience is a catalyst for digital transformation. She oversees the company’s coverage of a variety of customer experience software markets spanning ad tech, marketing, sales, commerce and service.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.