Slowing Investment Cycles & What it Means for PE
News, insights and updates from the team at Bloom Equity Partners
Happy Friday technology investors, operators, and enthusiasts!
We’re here again with The Weekly Bloom – one of the best weekly resources for Private Equity, Enterprise Software, and Technology news.
Slowing Investment Cycles Test Private Equity Strategies
Our team’s favorite articles and podcasts from last week:
Chart of the week: declining global private equity fundraising in 2022
Join over 6,000 readers for a weekly summary our favorite SaaS insights, articles, podcasts, tweets, and news headlines, subscribe below:
Bloom Announces Several New Appointments
Bloom Equity Partners is pleased to announce the promotion of Jeff Hsiang to Partner and several new appointments to the firm, including Jonathan Rosenblum, Amanda Greenberg, Tom Buiocchi, and Sam Chandler.
Slowing Investment Cycles & What it Means for PE
The private equity industry has benefitted from over a decade of low-interest rates, however, as interest rates rise, and economic uncertainty becomes apparent, new tailwinds and headwinds arise.
The Opportunity in Technology: With record dry powder and the adaptation of complex portfolio strategies that leverage relationships and expertise, private equity is starting to gain an edge against corporate buyers. With lower stock prices and increased regulatory scrutiny, M&A is becoming more difficult for corporate buyers but makes a perfect opening for private equity firms. Private equity buyers led seven of the 10 biggest IT M&A deals in the US and Canada last year. Since 2017, Thoma Bravo has deployed over $37 billion on cybersecurity companies, which is more than 10 times the amount invested by Palo Alto Networks – the largest corporate buyer.
Fighting Against The Storm:
With uncertainty in the air, longer investment cycles are triggering more value-creation strategies for portfolio companies. From optimizing and fortifying supply chains to emphasizing the importance of corporate culture, managers believe there are links between investment performance and employee turnover rates. Another opportunity arises in downturns, as they are expected to force larger corporations to produce spinoffs or divestitures. These occurrences can be buying opportunities for GPs as they focus on looking beyond the typical three to five-year investment cycle.
The Threat: In the latter half of 2022, private equity posted almost 20% fewer technology deals compared to the same period in 2021. Acquisition types have also changed with smaller, bolt-on deals accounting for 71% of all buyouts in the space for 2022. With debt becoming more expensive and declining valuations combined with an uncertain economic outlook, private equity entries and exits have fallen significantly – almost near 2020 levels. Portfolio companies are also affected – those carrying more debt become less flexible with their business operations and may see market share loss. On the other hand, firms that were more prudent with leverage can act more aggressively now and are still in robust financial positions.
About Bloom Equity Partners
We're big fans of mission-critical enterprise software, technology and tech-enabled business service companies with a competitive moat and a loyal, diversified, and growing customer base. Whether the business is bootstrapped, VC-backed, or a division of a larger organization, Bloom is completely agnostic to the structure. We are actively seeking investment opportunities that fall within the criteria below. We welcome the opportunity to discuss potential investments with founders, operating executives and intermediaries.
Our Investment Criteria
Industry: Enterprise Software, Technology and Tech-Enabled Business Services
Geography: North America, Europe, Australia and New Zealand
Revenue: $5M - $50M (>70% recurring)
Growth: 5%+ annual revenue growth
Retention: >80% gross annual customer retention
Profitability: Positive EBITDA or near breakeven within twelve months
Investment Type: Operational control required
If you or someone you know is considering selling or taking investment in their business, we would love to learn more! We just launched our referral partner program, which compensates referrers for introductions that lead to affirmative outcomes.
What We’re Reading and Listening To…
Finding Opportunity in Secondaries
Bloom Equity Partners Career Opportunity
Investing from our debut Fund, we’re actively hiring for our investment team, linked below. Reach out to careers@bloomequitypartners.com or on the specific job ad if you'd like to learn more / recommend someone for a role.
Chart of the Week: North America Beats Other Regions Despite Fundraising Challenges
Private equity fundraising surged to enormous heights in 2021 with amounts totaling over $1 trillion. Despite the market turmoil due to the higher cost of debt and lower public valuations, North American fundraising still grew by 2.4% reaching a new height. Furthermore, although private market performance declined, they still continue to outperform public market equivalents.
Favorites from the Ecosystem
Investors…
Operators….
If you're enjoying The Weekly Bloom, we'd appreciate it if you shared it with your network.