Editor’s Note: This article was revised since its initial publication on July 18. White & Case’s third-party data provider updated its data to reflect developments that occurred between July 18 and July 19 and the article was edited accordingly.
In line with the global M&A trend, global private equity (PE) activity in Q2 continued to compare unfavorably to a blockbuster 2021. A total of US$436.3 billion in PE deals were announced in the three-month period—a 15% increase on the previous quarter, yet a drop of 29% year on year (YoY).
Deal volume stayed in line with this trend, with a total of 1,858 announced transactions representing a 28% decline YoY.
Tech activity remains hot across key sectors
The largest PE transaction of the quarter was the sale by Silverlake Partners of cloud computing firm VMware to US chipmaker Broadcom. The deal, which indicates Broadcom’s ambition to become a diversified tech business, will likely face severe antitrust scrutiny.
Buyout activity remained active in key sectors, such as cybersecurity. In April, US PE firm Thoma Bravo acquired identity security firm Sailpoint for US$6.8 billion. With cyber threats becoming increasingly sophisticated, and a growing number of start-ups coming to market, the industry has become a key growth area for private investors. Through the acquisition, Thoma Bravo will add a sixth security-focused company to its portfolio.
Another deal that reflects investor demand for cybersecurity assets is Carlyle’s buyout of IT consultancy ManTech International, valued at US$4.3 billion. Founded in 1968, ManTech provides technology solutions for US defense, intelligence and federal civilian agencies, including cybersecurity, data and analytics, and software development. The deal, expected to close in H2 2022, will increase Carlyle’s exposure to the fast-growing cybersecurity and government IT consulting markets.
Transport delivers big-ticket deals
The transportation sector also delivered some blockbuster buyouts in Q2. In what has been the second-largest deal of the year so far, Blackstone and the Benetton family acquired a majority stake in Italian infrastructure group Atlantia Spa for US$46.4 billion.
The deal is hoped to put an end to a troubled period for the firm and its investors following the Morandi bridge collapse in 2018 and the widespread impact of COVID-19 on the industry.
Also in April, KKR acquired a 40% stake in logistics company Hitachi Transport System—one of Japan’s largest logistics providers. The deal, valued at US$6 billion, is part of the Japanese conglomerate’s continued bid to become an IT and digital infrastructure specialist. Keiji Kojima, Hitachi’s new chief executive officer, has said he still plans to work with Hitachi Transport System to integrate digital solutions, for example industrial automation, into global supply chains.
Renewables power ahead
The global transition to less carbon-intensive sources of energy continues to spark PE firms’ interest due to the fast pace of industry growth and high returns on offer. In May, KKR made a bid to acquire ContourGlobal, a UK power generation company, for US$5.8 billion.
The London-listed company, founded by US entrepreneur Joseph Brandt and Reservoir Capital in 2005, now owns 138 thermal and renewable power plants across Europe, North America, Latin America, and Africa. The PE firm aims to capitalize on the transformational shift taking place in the global energy industry as governments and corporates race to reach their net zero targets.
Automotive transformation sparks deals
The high-growth automation software market is driving investment in the sector as carmakers look to expand their digital capabilities. Earlier this year, TPG Capital sold software firm Wind River to US automaker Aptiv in a US$4.3 billion deal. Through the deal, Aptiv is looking to gain a foothold in the lucrative automotive software market, which is expected to reach US$46.6 billion by 2028, according to Acumen Research and Consulting.
The deal reflects the rapid transformation taking place in this space, with carmakers racing to build their technological expertise and offer intelligent solutions—such as software-defined electric vehicles—to customers.
While down from the record highs of 2021, PE dealmaking continues to be bolstered by extremely high cash reserves within the industry. According to data from S&P Global, PE firms were sitting on US$2.3 trillion-worth of dry powder as of October 2021.
Challenges remain, such as inflation plus rising interest rates creating a tighter financing environment and making it more difficult to price deals. Meanwhile, US PE firms could face higher levels of scrutiny over the coming year, with the Department of Justice reportedly seeking to better manage their influence in the US economy.
These headwinds could prompt a slowdown in PE dealmaking, despite the large sums of cash at firms’ disposal. That being said, industries undergoing significant transformation, such as automation and renewables, will continue to attract from cash-rich investors looking for strong returns.