• Sector heatmap

Sector heatmap

PE deal volume (left) and value (right) by sector

PE volume and value by industry 2021

Unsurprisingly, TMT, Consumer, and Business Services continued to be the hottest sectors in FY21 in terms of deal volume.

TMT was supercharged by the pandemic as technology has become embedded into the lives of consumers and business operations. The TMT sector is therefore the front runner, with 33 deals contributing a total disclosed value of USD $7.5bn.

“The TMT sector will continue to be an active part of the economy for capital providers, trade players and strategic M&A. Technology as a sector has grown much faster than GDP over the last three decades and we expect that to continue as the economy continues to digitise.” - Potentia

A notable deal in the Business Services sector in FY21 saw Nomura Research Institute Australia’s (Nomura) acquisition of The Growth Fund’s portfolio company, Planit Test Management Solutions Pty Ltd (Planit) for an undisclosed deal value. Planit is headquartered in Sydney and specialises in providing software testing, quality engineering and automated testing solutions, and related consultancy services. The acquisition of Planit will help build Nomura’s reach in Australia. BDO was engaged by Nomura Research Institute Australia to perform the financial and tax due diligence, and to assist with the SPA completion mechanism drafting.

Pharma, medical and biotech also continue to attract a number of deals, however, in many cases deal value is undisclosed. As the BDO Healthcare Report states, PE remains a major player in the healthcare space, particularly in sub-sectors such as healthcare services and facilities. Additionally, PE healthcare deal values for FY21 have eclipsed those of trade buyers however, despite lower deal volumes relative to trade buyers, PE healthcare deal volumes saw an increase of 300% on FY20.  Healthcare will likely remain a key target on the investment radar underpinned by technological advances emerging in the healthcare sector through artificial intelligence, telehealth, robotics and blockchain.

Real estate largely remains untouched by private equity. As highlighted in BDO Horizons, M&A activity within the real estate sector declined due to less reliance on traditional offices and commercial buildings, and increased flexibility amongst most workplaces further accelerated by the COVID-19 pandemic.

Read more about Private Equity in Healthcare: Australian Healthcare Industry: M&A and capital markets update 2021

Global trends highlight that PE’s interest in the TMT sector is a story of two tales – with one being a continued investment in emerging high growth companies with next-generation technologies (with a focus on software), and the other is a newer and increased focus on the regeneration of telcos.

In recent years and as highlighted by our Private Equity in Review, telco investment has been attractive for PE, given that many of their systems – such as copper line networks – require a vast amount of capital to boost them back into relevance. Whilst costly, communications infrastructure sets the foundation for both the digital economy and the development of smart cities – which utilise technologies such as fiberoptics, 5G, IoT – and the result is boundless growth opportunities for digital infrastructure investment.

The pandemic has also highlighted that the digital infrastructure market is stable despite other sectors being affected by geopolitical tensions and volatility – it also operates within a highly regulated environment, and will continue to as protectionism grows.

Technology's ability to keep a world connected both through leisure and work cannot be underestimated – with an assortment of activities that harness it being observed over the past two years - namely the e-commerce boom, as well as data storage, and network security.

This flow-on effect from the Pandemic has also been observed in the media arena, with the previous year seeing a boom in media assets, including pay-tv and broadband operators; digital media and digitally enabled marketing, including content and entertainment and of course software.

‘Listenership’ is also on the rise and will continue to grow. As highlighted in BDO’s latest Media Talk, podcasting is a hot sector and is also likely to be an attractive market for PE investment, given that so many are built on a subscription model and there is potential for licensing and royalty revenue on top of traditional ad sales.

Over the next year, we expect TMT deals will continue to lead PE deal activity, with PE dealmakers going beyond and investing in the advancement of technology as companies and countries continue to adapt to the change in consumer demands to be digital, as well as the inevitable consolidation in the market. Additionally, in harnessing emerging tech trends, we expect PE to invest earlier through either co-investing with or providing exit opportunities to early backer VC funds on TMT deals.

Sebastian Stevens
Technology, Media & Entertainment and Telecommunications