IT starts 2021 as most active target sector for US PE deal activity

IT kicked off 2021 as the top sector of choice for private equity and venture capital deals in the U.S., continuing the trend in 2020, according to the latest data from S&P Global Market Intelligence.

Sector performance

The IT sector dominated U.S. deal activity in the first quarter with 599 entries announced and a gross transaction value of $22.82 billion. The number of IT deals was down from 606 year over year but was up from 565 in the fourth quarter of 2020. Gross transaction value in the sector declined from $34.80 billion in the preceding quarter but was higher than the $14.80 billion recorded in the first quarter of 2020.

IT entries made up 38.7% of the 1,546 deals signed across all sectors in the first quarter, driven in part by accelerated investment pace in the sector, particularly in internet and software services, as the coronavirus pandemic sped up the global shift to the digital world.

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The healthcare and industrial sectors were the second and third most active markets for PE deal activity in the first quarter, with 318 and 141 entries announced, respectively. Healthcare deals accelerated from 262 and 274 in the first and fourth quarters of 2020, while industrial transactions slipped from 150 year over year but jumped from 113 in the preceding quarter.

Healthcare deals in the first quarter hit $15.54 billion in aggregate value, up from $12.74 billion and $10.55 billion in the first and fourth quarters of 2020. Industrial deals soared to $16.20 billion in gross value from $1.65 billion in the year-ago quarter and $3.90 billion in the preceding quarter.

Consumer discretionary and communication services were tied at No. 4 in terms of the highest number of private equity deals during the first quarter with 132 entries each, while the sectors' gross transaction values amounted to $7.64 billion and $3.38 billion, respectively.

In the first quarter of 2020, consumer discretionary had 97 entries with an aggregate value of $980.0 million, and in the fourth quarter of 2020, the sector had 124 transactions with a gross value of $3.11 billion.

Deal volume and gross value in communication services were higher in the first quarter than in the previous quarter but were down from 141 transactions and $11.80 billion in aggregate value in the year-ago quarter.

First-quarter entry deals slipped to 74 for financials and to 54 for consumer staples from the previous quarter's 70 and 53 transactions, respectively. Gross values came to $6.84 billion for financial deals and $5.82 billion for consumer staples transactions.

The real estate and energy markets both experienced year-over-year and quarter-over-quarter declines in deal volumes in the first quarter, with just seven and three entries announced, respectively. The COVID-19-induced decline in fuel demand and plunge in oil prices were seen as contributing factors for the decreased investor appetite for energy M&A activity in 2020, while investment activity in the sector is continuing to be rather muted at the start of 2021 amid the ongoing energy transition.

Prominent pacts

A number of high-profile IT transactions were announced in the first quarter.

Thoma Bravo LLC scored a hat trick of deals during the period, including its proposed buyout of cloud-based financial software company Calypso Technology Inc. for $3.75 billion in cash. The transaction is scheduled to close in the second quarter, pending regulatory approvals.

The software-focused investor is also set to acquire Talend SA in a roughly $2.4 billion deal that would take the France-based software company private. The tender offer for Talend's shares is slated to close in the third quarter, while the redomiciling and related transactions could be finalized in the fourth quarter.

Thoma Bravo just closed its purchase of enterprise software company Calabrio Inc. from KKR & Co. Inc. The deal, the terms of which were not made public, was announced in late March.

Danish enterprise software provider Unit4 NV is in the process of being acquired by TA Associates Management LP and Partners Group Holding AG in a more than $2 billion transaction, which would mark an exit for Advent International Corp.

Chinese private equity firm Wise Road Capital Ltd. is poised to take semiconductor company MagnaChip Semiconductor Corp. private in an approximately $1.4 billion transaction.