PE Fundraising Increase Means A lot of Tech, Healthcare M&A Coming

Private equity firms are raising larger funds than they have in years. Investors are looking to put the flood of capital to work as the economy recovers and the remainder of the year looks rosy. Frazier Healthcare Partners, Luminate Capital Partners and TA Associates are among those the PE have recently raised oversubscribed funds, suggesting that technology and healthcare deals will be the beneficiaries.

PE firms have raised about $241 billion through June 2, compared with approximately $176 billion in the first half of 2020, according to Preqin. (Pre-pandemic, the amount of capital raised in the first half of 2019 was $180 billion, double the $90.5 billion raised for the same period in 2018.)

On June 2, TA Associates announced it had raised $12.5 billion for its fourteenth fund. Demand for the fund exceeded the original target of $10.5 billion. The fund will make investments of up to $600 million across the technology, healthcare, financial services, consumer and business services sectors. In May, TA invested in identity verification company Radiant Logic.

Tech has been of the most resilient sectors lately, largely driven by digital transformation and more people working from home during the pandemic. PE firms have been raising large funds to take advantage of a hot sector. On June 1, Luminate Capital Partners announced the closing of its third fund at an oversubscribed $1 billion, significantly exceeding its $700 million target. “The cloud-based software market is huge and growing quickly,” Luminate founder Hollie Haynes told Mergers & Acquisitions. In April, Luminate backed Axonify, a provider of frontline employee training software. 

It is not just tech that is attracting investors. Healthcare M&A remains robust, not surprising given the healthcare crisis caused by Covid. In May, Frazier Healthcare Partners closed its tenth healthcare-focused fund at an oversubscribed $1.4 billion. The firm invests up to $300 million in businesses that have up to $75 million in Ebitda.  In December 2020, Frazier acquired a 50 percent stake in CSafe Global, a Dayton, Ohio-based provider of cold chain shipping and air cargo services to the life sciences and pharmaceutical industries.

The good news is expected to keep on coming. Throughout dozens of interviews Mergers & Acquisitions has conducted over the last few weeks, dealmakers are decidedly upbeat.

“Ebullient is what it feels like to me,” said Stewart Kohl, co-CEO of the Riverside Co. at Mergers & Acquisitions’ recent Best in M&A event. “Based on my 32 years of doing this, this is the best M&A market I can recall – if you define best as being the highest multiple, fastest to sell, easiest time to operate.”

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