Deal activity has propelled to unseen levels due to a combination of strong leveraged lending markets and an accelerating European economic recovery powered by rising vaccination rates. Other contributors include the EU unleashing its fiscal power through the NextGeneration EU recovery fund, willing sellers taking advantage of high valuations, and GPs sitting on mountains of dry powder. Take-privates also had a particularly impressive H1 2021, with deal value pacing to hit its highest annual figure in over a decade, lifted by a swath of underperforming European equities.
One of the reasons for the Technology sector’s lofty pricing include a decade of rapid innovation around the cloud and IT infrastructure, which has allowed tech companies to come to market and scale at a phenomenal pace. In addition, because many enterprise software products and IT services are mission-critical, these solutions are difficult to dislodge once installed, causing high customer stickiness, which translates into more expensive assets for acquirers. Lastly, many companies— small and medium-sized enterprises (SMEs) in particular—are still only midway along their technology adoption curve, so the growth prospects of the IT sector likely remain the highest of any sector, and this helps explain the sector’s peak median multiples.