Tech deal volume verging on overwhelming — panel

by Rachel Stone and Sydney Halleman of Mergermarket

One of the biggest challenges facing private equity firms in the tech sector is time, experts said during Mergermarket’s US Tech Opportunities panel.

The volume of potential deals in the market “is almost overwhelming,” according to Elizabeth de Saint-Aignan, managing director at Sun Capital Partners. “I'm hearing this from a lot of funds that you just don’t have enough staff to evaluate all of the opportunities.”

The lack of time also means some startups that would have been noticed in the past might be getting passed over.

The best companies are seeing more interest than ever, but as you drop out of the best-in-class range, buyers are backing off very quickly, de Saint-Aignan said. Those assets that historically might have gotten 50%-75% interest may not get any as investors try to conserve their time, she added.

This phenomenon is somewhat reflective of how global the tech market is, said J. Stuart Francis, senior managing director at Evercore [NYSE:EVR].

“The leaders in each particular market don't become monopolies, but they certainly gain more market share than ever before,” Francis said.

Finding a path to liquidity for B- and C-level companies is much more challenging, which prompts M&A activity among the strategics, Francis said. These companies combine to increase scale, improve efficiencies in overhead and devote more funds to research and development, he added.

The TMT sector has led dealmaking this year by a landslide, said Jennifer Simon, vice president of product management at Datasite.

“It’s the busiest sector, and it doesn’t look like it’s going to change,” Simon said, noting that industrials and life sciences followed far behind the TMT sector.

But this surge in deals coupled with short-staffing has some concerned that dealmakers might experience burnout.

“It used to be that our teams had time to assess every deal that came in, and now, the volume is just out of control,” de Saint-Aignan said. “You’ve just got to be ruthless with your culling.”

Digital due diligence may have also led to increased work hours and downward pressure on banking staff, panelists added. 

Questions that Francis asks include: Is this an assignment that’s executable? Do we really want it? Can we do it without blowing up the rest of the team?

Burnout is a challenge, Francis said. But he hopes that the excitement of the deal and the thrill of what’s happening in tech outweighs the abnormal demands on dealmakers’ time.