Despite challenging conditions in the broader market, the tech, B2B, and healthcare sectors have been thriving in recent months. After a standout year in 2021, private equity slowed down in the first half of 2022 due to a sink in investor sentiment. Private equity transactions have slowed in 2022 due to a raft of new risks.
Fears of economic downturn and global political turmoil are affecting investor confidence—as a result, some investors are biding their time, adopting a ‘wait-and-see’ approach. However, others are keen to invest dry powder into sectors ripe with opportunities, such as tech, B2B, and health. These sectors, along with real estate, collectively account for almost half of 2022 private equity transactions by value.
These GPs and LPs have conviction that deals completed while coming out of a recession tend to deliver strong returns, so despite the worries around economic and political instability, private equity firms are confident that the right choices made in the coming months will yield outsized results.
This article explores the latest deals in the tech and health sectors, despite the new risks of inflation, rising interest rates and geopolitical instability.
Tech and B2B Sector Developments
2021 was a fantastic year for the tech sector. Tech deal value for the year more than doubled, totalling a staggering $474 billion and representing over 40 per cent of overall private equity deals. However, deal activity in the second half of 2022 is declining.
Despite the upheaval, SaaS companies remain an attractive investment. Initial worries that SaaS customers would cancel subscriptions as soon as economic conditions worsen have proved somewhat unfounded, subscription numbers remain relatively stable. SaaS subscriptions are sticky, and businesses integrate them into their processes, meaning they rely heavily on them regardless of the economic outlook. As a result, investors like SaaS because of the predictable cash flow, high lifetime value and relatively low churn.
As a result, many jumped at the opportunity to invest at potential discounts. For example, in the first half of 2022, five deals worth over $1 billion were made in North America. However, deals in this space are becoming more challenging to find. Nevertheless, with all the dry powder that remains, there is no doubt that plenty more SaaS deals will be announced in the coming months.
Other tech and B2B sectors are seeing plenty of deal activity. For example, cloud computing received a boost due to the pandemic, which revealed the undeniable importance of flexible computing power. Consequently, the adoption of cloud computing is growing as more companies seek disaster-resistant systems, and private equity players are keen to get a slice of the pie. Notable deals in this space include Stonepeak Partners’ $2.5 billion private equity deal for a 29 per cent stake in American Tower and the $1.04 billion private equity deal that sees Credit Agricole Assurances and Vauban Infrastructure Partners take a 45 per cent stake in Telefonica.
Another area within the tech sector that is receiving more attention from investors is martech. Tech-driven marketing tools have skyrocketed in popularity in recent years as businesses of all kinds prioritise using customer data and analytics to improve their marketing efforts. This subsector is attractive for private equity as there are approximately 7,000 different martech vendors, resulting in plenty of acquisition opportunities, albeit a fragmented landscape to navigate. The most notable acquisition in this subsector was the acquisition of Zendesk for $10.2 billion by a consortium of private equity firms after turning down a $17 billion acquisition in February.
Even as economic pressures intensify over the coming months, the sheer amount of dry powder available will mean that tech private equity transactions will likely continue.
Health Sector Developments
Since the pandemic, investment in health has boomed. After a slump in investment in 2020, the health sector reached over $150 billion in 2021, and healthcare deals grew from 380 in 2020 to 515 in 2021, according to Bain.
There has been plenty of private equity deal activity in the healthcare space, much of it with a focus on technology. Early in 2022, several large acquisitions dominated the health sector. For example, one of the most significant deals in the industry was the $17 billion buyout of Athenahealth by several investors, including Hellman & Friedman and Bain Capital.
Furthermore, investors appear to be increasingly focused on acquiring companies specialising in value-based care, including providers and technology solutions. Most recently, Water Street Healthcare Partners announced the acquisition of a stake in the group formed by CXV Global, a US company that provides advanced technology solutions in computing, automation, machine vision and digitisation to life science research.
General Electric made headlines last year when it declared its plans to spin off three divisions into separate companies, one being GE Healthcare. The spin, planned for January 2023, will see GE Healthcare manage its own capital and invest in acquisitions in development efforts in the healthcare space. In addition, the company plans to allocate a significant portion of capital into acquiring companies to enhance core business lines, such as imaging, precision medicine and AI analytics.
Despite investors being more cautious than in 2021, healthcare remains an attractive investment. Investors hope their involvement will improve management and operations, resulting in better patient outcomes. The consensus is that interest in health companies, especially telehealth and digital health companies, will continue into 2023.
Tech, B2B and Health: Opportunities Abound
There are plenty of opportunities waiting to be seized in the tech and health sectors. To help our customers navigate the opportunities in the current climate onefourzero has a range of low-latency products in our recession toolkit. While seizing opportunities when they become available is necessary, so is reliable and robust due diligence as scrutiny increases.
If you’re seeking a third-party due diligence provider with fast turnaround times and a robust process that utilises plentiful data, don’t hesitate to get in touch. We work with private equity and PE-backed businesses, offering diligence and value creation services, as well as our one-stop data solution, threesixty.