Flush with cash, private-equity firms are flocking to the technology sector.
Silver Lake, based in Menlo Park, Calif., said this month that it raised $15 billion in capital for a tech-focused fund, exceeding its $12.5 billion target. Private-equity dealmaking in the sector is accelerating, with a record 184 transactions in the first quarter up 26 percent from the same period a year earlier, according to 451 Research, an information technology research and advisory company.
The tech industry is seeing a shift in its capital source - from venture capital to private equity - as fundraising in the latter market booms, according to alternative asset research firm Preqin. Forty percent of investors surveyed by Preqin plan to increase their investment in private equity this year.
An increasing number of tech-related companies have moved beyond the traditional territory of venture capital funds, and the sector as a whole has increasingly become a target for the wider private equity industry, Christopher Elvin, head of private equity at Preqin, said in an email.
Silver Lake is now the manager of the largest tech-centric private-equity fund ever raised, a title once held by private-equity firm Vista Equity Partners, whose sixth fund attracted $10.5 billion in late 2016, according to Preqin.
As for the wider fundraising boom, Elvin said that a record 1,908 private equity funds were seeking a combined $635 billion from investors at the start of April. While the most in-demand managers often see their funds oversubscribed, forty-five percent of investors say its harder to identify attractive investment opportunities in private equity compared to a year ago, according to the 2017 Preqin Global Private Equity and Venture Capital report. Only 5 percent believe its easier, Preqin found.
Silver Lakes most recent deal was the March sale of Vantage Data Centers to a group of investors that included Digital Bridge, PSP Investments and TIAA Investments, for undisclosed terms. Silver Lake also hold stakes in large tech companies such as Alibaba Group, Avaya, Broadcom, and Motorola Solutions, according to the private equity firms website.
Vista, meanwhile, acquired Infoblox, a tech security company, in November. The firms portfolio also includes Cvent, Sovos Compliance, and Superion, its website shows.
As for how quickly newly raised private equity capital will be deployed in tech? Elvin said giant firms like Silver Lake and Vista will take their time.
It is likely that these funds will not be able to deploy their capital as quickly as smaller growth or venture capital funds operating in the same sector, but there is no indication that they should necessarily adopt a slower rate of deployment than other buyout funds of a similar size, Elvin wrote in an email.