April 21, 2008

Hold The Eulogy For Private Equity

PE Firms Are Still Buying – At Least In The IT Services Sector

In the latter half of 2007, it was widely assumed that the macroeconomic environment would forestall any meaningful M&A activity on the part of private equity buyers across most sectors. Compared with the froth that PE firms churned up around tech and services in 2007, their role in 2008 was expected to be minimal, if not a thing of the past entirely. However, we were pleased to find a healthy level of IT services M&A activity driven by private equity firms so far in 2008. The biggest private equity deal in the IT services space was by far the buyout of TietoEnator by Nordic Capital, taking the large European integrator private for almost $2 billion. One of the stated objectives underlying the transaction was, in the words of Nordic Capital’s partner Robert Furuhjelm, to enable TietoEnator to “realize its full potential as an unlisted company without having to focus on short-term financial performance.” Other going-private transactions with similar long-term perspective include Charlesbank Equity’s offer – in tandem with David Pomeroy – to acquire infrastructure services firm Pomeroy IT Solutions for $85 million and 3i’s acquisition of UK public-sector services vendor Civica Plc for $364 million. While these deal values don’t approach some of the huge 2007 PE deals (Ceridian/THL Partners and FNF at $5.3 billion and CDW/Madison Dearborn for $7.3 billion are two examples), they do suggest optimism that IT services firms are undervalued and worthy of significant long-term investment. This is great news in a year when many expected private equity’s flattening or outright demise.