Private Equity
PE tech investors move beyond their traditional hunting grounds
July 1, 2021 View comment (1)
Boulder, Colo., nestled at the base of the Rocky Mountains, is not synonymous with tech investment.
Nevertheless, it was the location for one of last year's biggest deals when EQT, Ardian and Digital Colony bought local communication infrastructure company Zayo Group for $14.3 billion.
The Zayo Group buyout is just one of many deals happening in America's lesser-known tech-driven cities. Just 25 miles southeast of Boulder, the Denver metropolitan area has seen a large influx of tech-driven PE buyouts, and the region is not alone. Miami, better known for its pristine beaches and nightlife, has also seen a significant uptick in tech buyout deals.
With tech quickly becoming a ubiquitous feature of the economy, private equity dealmakers are breaking geographic norms established over the past decade and looking beyond classically known tech bubbles such as Silicon Valley and New York. Cities like Denver and Miami are particularly indicative of this trend.
According to PitchBook data analyzing two five-year periods (2011-2016 vs. 2016-2021), Denver saw a more than 70% increase in private equity deals, with its deal count rising to 176 from 103, while Miami saw a deal count inflate to 139 from 108, representing nearly a 30% increase. The two metropolitan areas have seen a larger influx in tech buyout deals than almost any other US metropolitan region.
"The numbers show two things," said Rebecca Springer, a private equity analyst at PitchBook. "That PE investment in tech has grown significantly over the past decade or so, and that Denver and Miami are growing tech hubs and are therefore offering more tech companies for PE to invest in."
Other metropolitan areas seeing a rise in tech buyouts over the last five years include Raleigh, N.C., Alpharetta, Ga. Birmingham, Ala., and St. Louis, according to PitchBook data.
Since June 2016, the five biggest deals in Denver and Miami all surpassed $1 billion; each metropolitan area has seen a tech buyout break the $10 billion mark.
The IT and healthcare sectors saw the biggest climb in terms of deal count in both metropolitan areas, while B2B and energy tech sectors saw a leveled or small increase.
In Miami, a culture embracing private equity and new financing trends—such as the city’s embrace of bitcoin—has painted the city as a new hot spot for tech buyout deals involving venture capital-backed startups. Many VC firms from the Bay Area set up shop there during the pandemic, some stating intentions to relocate there permanently. In May, Miami Mayor Francis Suarez was hired by private equity firm DaGrosa Capital Partners as a senior operating partner.
Joe DaGrosa, founder and chairman of the firm, said Miami's unprecedented surge in private equity and venture capital interest is in large part driven by Suarez's agenda to strengthen the city's profile as a financial services hub.
"Financial professionals are particularly attracted to the favorable tax rates offered by the state of Florida, coupled with Miami's bourgeoning supply of highly qualified talent," DaGrosa said. "It is also no secret that Miami boasts some of the nation's best climate, attractions and overall quality of life."
The Miami area's largest buyout came in 2019 when a consortium of firms including Blackstone, Canada Pension Plan Investment Board and Hellman & Friedman bought management software company Ultimate Kronos Group in a public-to-private deal valued at $11 billion.
As technology-driven businesses continue to remain a priority for many PE firms, the trend of smaller metropolitan areas garnering more attention from firms is likely to continue. The question is, which cities will be the next PE hot spots?
Springer was reluctant to make predictions, but suggested two trends to keep an eye on.
"The first may seem obvious, but watch where venture is going," Springer said. "Around 20% of the tech-sector middle-market PE buyouts are now of venture-backed companies, and that number is likely to grow."
The second trend, Springer noted, is the growth of the digital infrastructure industry—a somewhat broad sector including assets that support digital connectivity, such as data centers, fiber-optic cable and cellular towers.
"Digital infrastructure is red-hot right now, both for PE, and in the public markets, and obviously underpins the rest of the tech ecosystem," Springer said. "I would keep an eye on where those companies are growing."
Featured image of Denver via Lightvision, LLC/Getty Images
Nevertheless, it was the location for one of last year's biggest deals when EQT, Ardian and Digital Colony bought local communication infrastructure company Zayo Group for $14.3 billion.
The Zayo Group buyout is just one of many deals happening in America's lesser-known tech-driven cities. Just 25 miles southeast of Boulder, the Denver metropolitan area has seen a large influx of tech-driven PE buyouts, and the region is not alone. Miami, better known for its pristine beaches and nightlife, has also seen a significant uptick in tech buyout deals.
With tech quickly becoming a ubiquitous feature of the economy, private equity dealmakers are breaking geographic norms established over the past decade and looking beyond classically known tech bubbles such as Silicon Valley and New York. Cities like Denver and Miami are particularly indicative of this trend.
According to PitchBook data analyzing two five-year periods (2011-2016 vs. 2016-2021), Denver saw a more than 70% increase in private equity deals, with its deal count rising to 176 from 103, while Miami saw a deal count inflate to 139 from 108, representing nearly a 30% increase. The two metropolitan areas have seen a larger influx in tech buyout deals than almost any other US metropolitan region.
"The numbers show two things," said Rebecca Springer, a private equity analyst at PitchBook. "That PE investment in tech has grown significantly over the past decade or so, and that Denver and Miami are growing tech hubs and are therefore offering more tech companies for PE to invest in."
Other metropolitan areas seeing a rise in tech buyouts over the last five years include Raleigh, N.C., Alpharetta, Ga. Birmingham, Ala., and St. Louis, according to PitchBook data.
Since June 2016, the five biggest deals in Denver and Miami all surpassed $1 billion; each metropolitan area has seen a tech buyout break the $10 billion mark.
The IT and healthcare sectors saw the biggest climb in terms of deal count in both metropolitan areas, while B2B and energy tech sectors saw a leveled or small increase.
In Miami, a culture embracing private equity and new financing trends—such as the city’s embrace of bitcoin—has painted the city as a new hot spot for tech buyout deals involving venture capital-backed startups. Many VC firms from the Bay Area set up shop there during the pandemic, some stating intentions to relocate there permanently. In May, Miami Mayor Francis Suarez was hired by private equity firm DaGrosa Capital Partners as a senior operating partner.
Joe DaGrosa, founder and chairman of the firm, said Miami's unprecedented surge in private equity and venture capital interest is in large part driven by Suarez's agenda to strengthen the city's profile as a financial services hub.
"Financial professionals are particularly attracted to the favorable tax rates offered by the state of Florida, coupled with Miami's bourgeoning supply of highly qualified talent," DaGrosa said. "It is also no secret that Miami boasts some of the nation's best climate, attractions and overall quality of life."
The Miami area's largest buyout came in 2019 when a consortium of firms including Blackstone, Canada Pension Plan Investment Board and Hellman & Friedman bought management software company Ultimate Kronos Group in a public-to-private deal valued at $11 billion.
As technology-driven businesses continue to remain a priority for many PE firms, the trend of smaller metropolitan areas garnering more attention from firms is likely to continue. The question is, which cities will be the next PE hot spots?
Springer was reluctant to make predictions, but suggested two trends to keep an eye on.
"The first may seem obvious, but watch where venture is going," Springer said. "Around 20% of the tech-sector middle-market PE buyouts are now of venture-backed companies, and that number is likely to grow."
The second trend, Springer noted, is the growth of the digital infrastructure industry—a somewhat broad sector including assets that support digital connectivity, such as data centers, fiber-optic cable and cellular towers.
"Digital infrastructure is red-hot right now, both for PE, and in the public markets, and obviously underpins the rest of the tech ecosystem," Springer said. "I would keep an eye on where those companies are growing."
Featured image of Denver via Lightvision, LLC/Getty Images
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