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Enterprise software an investment target

The channel has seen investment levels rise this year, and market dynamics are making those involved with supporting the changing working world attractive to backers

Simon Quicke
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Published: 05 Oct 2021 2:45

Vendor consolidation is a fact of life, and the channel has also seen a flurry of investment from private equity and a number of IPOs as the value of backing those involved in the IT world becomes more widely appreciated.

That is not to say all investments are equal, and research from Hampleton Partners has underlined the attractiveness of the enterprise software world.

The market watcher found that side of the market was currently enjoying a wave of investment, with 751 deals worth $124bn in transaction value, in the first half of this year.

Various factors have driven investments in the enterprise software space, including the accelerated hybrid working triggered by the pandemic.

“Now, the situation is more complex, with many workers returning to a more flexible, hybrid office setup,” said Miro Parizek, founder and principal partner at Hampleton Partners.

“After initial investment in virtualisation and digitisation, there is a critical need for companies to ensure their teams have smooth, uninterrupted access to their technology and platforms, no matter where they are working from.

“That could mean investing more in cloud integration, collaboration and virtualisation tools, or better enterprise resource planning technology that can cope with the needs and demands of a hybrid workforce,” he added.

Private equity involvement

There was also more involvement from private equity, with it being involved in 44% of the deals, which is the highest level on record.

“Companies are adjusting their M&A strategy to focus more on a target’s business resilience, digital technology alignment, and to gain market share through consolidation,” said Parizek. “M&A activity is becoming a crucial lever for growth as the rate of organic growth decelerates for many tech companies in the future.

“Meanwhile, even non-tech companies are continuing to acquire capabilities in software, IT services and internet commerce verticals to digitise offerings, while private equity players are placing big bets on securing applications as well as risk and compliance,” he added.

There is also strong interest at the startup end of the market, with investments in those businesses also surging post-pandemic.

Those hunting unicorns – startups that are valued at $1bn or more – have seen their options expand over the course of this year. 

“The number of tech unicorns has increased over time,” said Swati Verma, associate project manager for the Thematic Team at GlobalData. “In 2013, there were only 39 startups that could achieve this benchmark valuation. However, the new and disruptive business models of these businesses have attracted more customers.

“The pandemic caused a slowdown in unicorn creation in early 2020, but 2021 is the strongest year yet,” she said. “A total of 228 unicorns were created in the first half of 2021 alone.”

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