Buyout firms are on the prowl for more technology targets, but investors should not expect a mad rush of deals before the end of the year, several senior bankers in the sector told Reuters, publisher of Buyouts.
Technology is a strong area of focus for private equity, said Chris Turner, a managing director in Barclays Capital’s financial sponsors group. Particularly with the stable cash flows, these deals offer good risk-adjusted returns, Turner said.
All private equity firms are looking at the sector opportunistically, including
A number of private equity firms have spent recent weeks eyeing disk drive manufacturer Seagate Technology, a deal that could be valued at $10 billion, sources familiar with the situation said. In October, the company announced it had retained Morgan Stanley and Perella Weinberg after receiving preliminary indications of interest about taking the company private.
At least four private equity firms, including TPG, Bain and KKR, have been interested in Seagate, these sources said. However, based on high price expectations, KKR’s interest is said to have waned while TPG remains keen.
Some sources have suggested two different consortiums have been reviewing the company, but did not elaborate. Price expectations by the seller ranging from $16-19 per share are becoming a deterrent to a deal, the sources said.
Companies in the sector that remain at the center of perennial private equity takeover speculation include Tibco Software, BMC Software, Acxiom Corp., CA Inc. and Symantec, bankers said.
“But you need to be able to prove that a company can be much better run private then being public,” said Eric Mandl, global head of software banking at UBS.
Bankers warned not to expect a mad rush of private equity deals in technology in the fourth quarter. There might be pressure to trade assets that are private equity-owned due to potential changes in taxes by the end of the year, but from the perspective of deploying capital, the private equity buyers remain opportunistic, said Mandl.
In addition, because there is a fair amount of money chasing a finite amount of assets, buyers are trying to put money to work “where they think they have an angle other than just adding leverage,” Turner said. The angle could be a management team, prior experience with a portfolio company or operating expertise such as adding distribution and cutting costs, Turner said.
Publicly traded technology companies with a market capitalization between $1 billion and $5 billion which are relatively mature and cash flow-positive are attractive to mid-sized and big private equity firms, said a banker who spoke on condition of anonymity.
“A number of these companies are really great cash cows, but they are just not growing,” the banker said. “So private equity are just flocking to them because they think there are ways to extract value.”
Nadia Damouni is a correspondent for Reuters in New York.