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AGC PARTNERS INSIGHTS: AGC’s Tech PE Annual Report – Private Equity Rides The Post-COVID Tech Tidal Wave December 2021

The global tech ecosystem has escalated to a feverish pitch since briefly getting crushed by COVID in the spring of 2020. Tech company formation, revenue and hiring growth, and the viral spread of technology to every aspect of our lives has propelled the sector to be the #1 industry, representing $6.9T in GDP, ahead of manufacturing, finance, healthcare, and everything else. Entrepreneurship, VCs, PEs, bankers, and public investors have stoked the flames of the raging tech industry’s growth with a flood of capital, manpower, and creativity.

While not all of the fruits of technology utilization are pleasant – e.g. 10 hours of screen time a day – there is so much of our lives that have been altered/improved in the way we work and live by the introduction of new technologies. 24% of the S&P 500 is represented by technology and the public software index has risen by 218% since April 2020, outperforming the S&P 500 by more than 2x. Annual technology M&A transaction value, which peaked around $600B pre-COVID, will cross over $1.3T this year. The tech IPO market will be up 7x in 2021 compared to its ten-year median. The SPAC market, which did not exist two years ago, will put up $480B in M&A value and over $100B in IPO proceeds in 2021. Public SaaS valuations, which have fluctuated between 5x and 10x revenues over the last 10 years are at roughly 16x.

In this post-COVID world, the sun has shined on technology, and tech PE funds have been making a ton of hay. By our last count, there are now over 300 tech PE funds with 3,700 portfolio companies and over $1.5T under management. Led by Vista, Hg, TA, Thoma, and Insight, tech PEs have done 1,200 of the 3,700 tech deals thus far in 2021. The latest tech funds to be announced are ginormous: Insight at $20B, Silver Lake at $20B, Thoma at $22B and Vista at $22B. Rumor has it that Thoma currently has five funds in the market raising a total of $34B in dry powder ready for deployment in 2022. AGC has now done 15 transactions with Thoma including PDFTron and Greenphire. With this amount of fund raising, AGC think there should be a few more deals to come!

Near zero interest rates, sky high public valuations, and strong PE returns are drawing LP allocations into these tech funds. In turn these tech funds will be doing larger deals, more go privates and a lot more PE to PE deals. The number of “club” deals has rocketed in the last two years and for several good reasons. The growth and quality of the 3,700 PE Port Cos makes for good hunting. In addition, a PE selling 51% of a Port Co to a fellow PE versus exiting 100% benefits from a big step up in basis (not to mention cash plus bragging rights), a continued position in a great company and a new partner to carry the torch going forward.

The PE funds have rapidly deployed a ton of capital for company building, acquisitions, and shareholder liquidity. In many cases, they have also advanced their portfolio companies’ capabilities across multiple fronts driving organic growth as well as acquisitions. Value creation from these activities has been enormous, and in some cases, it has been good enough to just rely on the benefits of growth and multiple expansion. As they say, it’s good to be in the right place at the right time, and technology private equity has been in the right place at the right time in a COVID world.

Tech venture growth funds have now emerged to be contenders for investing in these hyper-scaling young private tech companies. The days of venture capital checks capping out at $20M strictly for primary investment have been blown away by these new age venture growth funds like Tiger, Softbank and Founders. In the last three years, the top 150 venture growth funds have logged over 15,000 minority investments, with the top five combining for nearly 2,000. These funds are writing checks at a furious pace, sized between $5-200M with commitments made over a cup of coffee on the back of a napkin. Deals are done with limited due diligence, 30-day closings, standard preferred terms, sky high valuations, and passive investors. In many cases, the venture growth minority check is beating out the PE majority check with a higher valuation and the lure of not giving up control.

In AGC’s annual PE report, they have surveyed more than 50 of the top tech-focused PEs. With heavy participation from many of the top PEs, they gathered four years of stats on tech M&A activity, total assets under management, total number of majority-owned portfolio companies, and total number of platform deals.

Click to download AGC’s report: AGC-Tech-PE-Annual-Report-Dec-2021



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The 176 recent Tech SPACs in the market are breaking open the private equity world to allow the younger and sometimes more speculative companies into the public markets. PE, later stage VC, and strategics are no longer the only option.

Simultaneously, the oceans of cash in pensions, hedge funds, institutional investors, family offices, and Robinhood accounts can now play in the early stage technology company arena – it’s a brave new world.

Do not get me wrong! This is a much higher-risk world of investing, where single investments and companies can crash and burn overnight. You are not investing in Disney-type companies.

The results so far are spectacular. The 41 announced or closed Tech SPACs are up 60%, with only 3 below their $10 issue price. Valuations are up and stock performance is slightly down on recent SPAC deals. The 27 closed deals are up 76%, with a 7.3x revenue multiple, and the 14 announced deals are up 43%, with a 13.7x revenue multiple.

There have been 16 Tech SPAC filings in the last two weeks, including Thoma’s $900M SPAC. The median raise is $225M, down from $284M on the most recently closed SPACs, and the warrants are trending from 1/2 to zero. In fact, Thoma filed their IPO with 1/5 warrants, then filed an amendment taking public warrants down to zero – telling! The median EV is down slightly from $1.7B to $1.5B, and this trend should continue because median SPAC proceeds are coming down. SoFi just announced at ~$9B EV, up 60%, and Achronix at $2B, up 12%. Interesting that SoFi was announced just 3 months after completing their IPO. The 27 closed SPACs were announced roughly 16 months from IPO, and the 14 announced SPACs were 7 months. Expect more SPACs to be finding and announcing their acquisitions at a faster pace, as the SPAC market gets more fluid and institutionalized.

With 41 Tech SPACs announced or closed and 135 in or soon to be in the market for acquisitions, we have massive experimentation for this new world of earlier stage public tech companies. We are already seeing deal size getting smaller, driven by far more acquisition targets at sub-$1.5B values. The public warrants are trending down or going away completely. Announced valuations are going up, which may have a dampening effect on aftermarket performance and hedge fund and institutional investor demand. The common and core mission for sponsors, PIPE investors, and acquired companies should be to fund quality tech companies ready for the public limelight that are priced for success.

Click to download AGC’s report: AGC-SPAC-Update-Jan-2021



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The COVID 19 Pandemic has accelerated what was already an “E-Commerce Wave” to become an “E-Commerce Tsunami”. As consumers have been holed up in their homes, online commerce has exploded. According to Nielsen, pre-COVID, only 9% of global consumers were shopping online regularly. Through COVID, 27% started shopping online for the first time. By May 2020, 44% said they were shopping online regularly each week. And, a recent study of 14,000 consumers by Shopkick also supports this massive change in consumer behavior. That report states that 60% of the study’s respondents say that the Pandemic has forever changed their shopping habits.

This report on Marketplaces is Part One in a Three Part “E-Commerce Tsunami” Series:
Part 1: Marketplaces Go Mainstream
Part 2: The Strong Swell of DTC Brands Disrupting the Retail Landscape
Part 3: The Technology Undertow Powering Massive Changes to the Retail Industry

This report focuses on how Marketplaces have in fact “gone mainstream.” They represent a $2.1 Trillion market opportunity with 1200+ companies across the U.S and Europe. They represent over 50% of all online purchases and almost 60% of Amazon’s total revenues. Marketplaces thrive across a wide variety of verticals and expansive types of products—from habit forming daily transactions to high cost luxury experiences. This report also focuses on the Marketplace models of today and and key success factors.

Click to download AGC’s report: AGC-Marketplaces-Go-Mainstream-Dec-2020



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The COVID-19 crisis has forced a once-in-a-generation shift at all levels of the real estate value chain as tenants and owners rethink how they use space and allocate strained budgets. The critical importance of real estate tech to solving the current crisis is demonstrated by unprecedented investment into real estate tech solutions, a historic spike in M&A activity and a massive run up in share prices for most public real estate tech companies.

Click to download AGC’s report: AGC-Real-Estate-Tech-Nov-2020



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While the Pandemic has upended economic, political and social life across the globe, it has also poured lighter fluid on many of the trends in the supply chain software sector that have been burning hot for the past several years.

From the Amazon effect in retail eCommerce and fulfilment to the rise of automation and visibility platforms in global transportation networks, to accelerated roboticization in warehouse and distribution centers, the emergence of eCommerce as a dominating force in retail has quickened dramatically in just the last four months.

The supply chain software sector has been a clear beneficiary of these trends as investors and acquirers have continued to pour investment and M&A resources into both established and emerging companies. At the current activity levels through July 2020, we are on pace to exceed the record-breaking 2019.

Click to download AGC’s report: SCM-Market-Update-2020



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Prior to COVID, annual gains in Telehealth usage were measured in basis points. The current episode has effectively compressed a decade or more of hoped-for adoption into a matter of months. From every quarter, the data keeps rolling in showing Telehealth services growing at a blistering pace. According to a study recently released by Fair Health, Telehealth claim lines increased 8,335% year-over-year during the month of April in the U.S. Telehealth is defined as the use of information and telecom tech to support long-distance clinical health care, patient and professional education, public health and health administration. Technologies include various real-time interactive communications such as mobile video and IP video conferencing as well as store-and-forward imaging, streaming media, and wireless communication between connected devices. This report takes a closer look into the market as well as companies in the ecosystem, M&A and private placement activity.

Click to download AGC’s report: AGC-Telehealth-Sep-2020



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During the Covid-19 pandemic, as people are self-isolating and socially distancing, online and mobile entertainment is booming. The global games market is expected to generate revenues of $159 billion in 2020. Gaming and entertainment technologies have experienced amazing advances in the past few years with billions of dollars invested in virtual and augmented reality, 3D computer graphics, GPU and CPU processing power, and real time immersive experiences.

This report focuses on the technologies that empower the creation of games and online entertainment.

Click to download AGC’s report: Game-Tech-Whitepaper



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You need to have faith, hope, and $7.2 trillion in fiscal and monetary stimulus behind you to power through the COVID-19 pandemic. AGC’s early read of the new post-COVID normal is that the tech M&A market will be in short supply of companies for sale until September. PEs are not likely to be selling portfolio companies until the COVID storm has passed. And while VCs may be more willing to sell, it will be driven by portfolio restructuring, i.e. cutting loose underperforming investments to free up time and capital for perceived winners. This will likely result in a leaner market not just in quantity, but also quality. The good news is, deals going to market right now are getting a ton of attention. While PEs may be on the sidelines as active sellers, they are lined up in droves as buyers, and their pockets are very deep.

The tech M&A business is decelerating rapidly as of this writing. Q1’20 volume was 853 deals vs 850 in Q1’19, surprisingly solid! First week of April volume is down 30% and it will get worse as we progress through the quarter. That said, the S&P 500 is only down 3% over the last 12 months, an expression of confidence that the worst is over. It will be interesting to see whether the Strategics will take back ground from the PE players in these challenging times after giving up so much tech M&A market share over the last 5 years. We estimate the Top 200 Tech PE Funds to have over $1T in tech AUMs including significant dry powder. On the tech VC front, by COVID-19, we expect them to be busy identifying companies for disposition. While cash deals will be harder to come by because of the virtual shutdown in the debt markets, equity swaps with the PE-backed strategic will proliferate.

The attached deck covers some of the latest data on tech M&A.

Click to download AGC’s report: AGC-COVID-19-Tech-MA-Update-Apr-2020



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With AUMs growing by nearly $400B annually and on track to surpass $5T by 2023, private equity has been the fastest growing asset class for some time now. As a subset, tech-focused PEs have been a strong driver of that growth. Tech PEs have become the power player in the global tech world competing toe-to-toe with the strategic community and rocking the landscape across the hundreds of technology markets and thousands of companies. They now account for 31% of all deal flow, up from 9% at the beginning of the decade.

The post great recession generation of tech PE funds deserves the mantra of “buy and build,” and our analysis bears that out. The top Tech PE firms seek out and pay up for platform companies that have the size, market leadership, and management on which they can build. Over the two year period tracked, the top five firms alone combined for 369 add-ons and 83 platform acquisitions, a roughly 4 to 1 split and multiplier effect. These are the firms perfecting the PE “buy and build” formula, generating outsized returns and new fund closings in kind.

In this report, AGC identify what they believe to be the core of the Tech PE world, with firms ranked by number of deals, dollar value, fund formation and other key metrics.

Click to download AGC’s report: AGC-Global-PE-Tech-Review-Feb-2020

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Attached is AGC Partners’ Insight report “The ABCs of SMBs.” This thought piece explores the market for software and services selling into small and midsize businesses (SMB) globally, and the technology providers and strategies used to best penetrate this underserved and rapidly growing market. The low-cost ease of use SaaS delivery model has broken open the SMB market, generating $380 billion in software spend.

SMB is a different animal than the large enterprise market, and requires a radically different go-to-market strategy. A watered-down version of an enterprise offering is almost guaranteed to fail. Software vendors need to maintain a laser focus on unit economics and a low-cost approach to sales in order to minimize customer acquisition costs and churn, and maximize volumes.

Click to download AGC’s report – ABCs-of-SMBs-12.12.19-Condensed-Version