The number of tech-only private equity firms is on the rise, with generalists, such as KKR and Carlyle, also creating tech-focused funds. High growth companies with little or no profit have not fitted the typical PE investment profile. However, as investors come to terms with their different growth trajectory and have seen examples of companies achieving the growth rates that can support the kind of multiples required to buy these types of assets, especially on the software side, they are increasingly willing to invest at valuations that would be incomprehensible in other sectors. There is speculation that there is a bubble in the technology sector, which means investors will still be cautious at the point of investment. But when they do come across top quality assets they should be prepared to go for it, as there is no doubt that others will be ready to invest.
When the private equity industry was in its infancy in the 1980s, the tech sector was barely on its radar. Gradually, this changed. First hardware assets became tolerable for debt providers. Then came the realisation that software, although lacking hard assets to lend against, could offer reliable recurring revenues. ... Tech is now attracting all types of private equity firms, with the sector representing almost 40.1 per cent of US buyouts last year, according to Dealogic data. That is the highest proportion on record and up from around 10 per cent in 2010. Established generalists such as KKR and Carlyle have been joined by tech-focused firms such as Golden Gate Capital and the newer Siris Capital.