{"id":338351,"date":"2017-04-14T01:59:29","date_gmt":"2017-04-13T17:59:29","guid":{"rendered":"http:\/\/techcrunch.com\/?p=1476575"},"modified":"2017-04-14T01:59:29","modified_gmt":"2017-04-13T17:59:29","slug":"pandora-becomes-the-latest-tech-company-to-turn-to-private-equity","status":"publish","type":"post","link":"https:\/\/people.utm.my\/asmawisham\/pandora-becomes-the-latest-tech-company-to-turn-to-private-equity\/","title":{"rendered":"Pandora becomes the latest tech company to turn to private equity"},"content":{"rendered":"

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You might have noticed:\u00a0private equity firms love them some\u00a0technology companies. According to new Pitchbook data<\/a>, one-fifth of all U.S. private equity deals in the first quarter of this year centered on companies in the IT sector.<\/p>\n

That\u2019s up from the 10 to 15 percent range over the last 10 years, with the most popular targets being\u00a0software companies; they\u2019ve made up\u00a054.2 percent of all PE investments in the broader tech space since 2006, and 63 percent of the transactions since early last year, says Pitchbook.<\/p>\n

It\u2019s easy to see their appeal to PE firms, including those companies controlled\u00a0by other PE firms, those backed by VCs and those that have gone public already but have seen their share prices plateau (or worse).\u00a0What they share\u00a0in common:\u00a0investors looking to get out so they can fund the next shiny thing.<\/p>\n

One case cited by Pitchbook is the 2012 buyout and subsequent IPO of unglamorous consumer credit data company TransUnion. Owned at the time by\u00a0Madison Dearborn Partners and the Pritzker family, Goldman Sachs acquired it, sunk a bunch of money into the business and took it public three years later. In the process, reports the WSJ<\/a>,\u00a0TransUnion had \u201cbecome a data-mining machine, gathering billions of seemingly insignificant tidbits about ordinary Americans that it analyzed and sold to lenders, insurers and others.\u201d All told, says the WSJ, Goldman is expected to make five times its initial $550 million investment in the company.<\/p>\n

Venture-backed tech\u00a0companies that aren\u2019t quite ready to withstand sustained\u00a0public shareholder scrutiny are other great targets, as\u00a0Brian Ruder, co-head of technology at the global PE firm Permira discussed with us<\/a> recently. The idea is for the PE firm to\u00a0buy a controlling stake and, in the process, gobble up the shares of early investors. Afterward\u00a0\u2014 as with that TransUnion deal\u00a0\u2014 money is reinvested into the company to\u00a0make it more valuable to a subsequent acquirer or\u00a0public shareholders.<\/p>\n

In 2014, for example, Permira invested $200 million to acquire a controlling stake in LegalZoom, an online service that helps people create their own legal documents. LegalZoom\u00a0had filed to go public in 2012 with much fanfare, but pulled its offering in the wake of Facebook\u2019s seemingly troubled IPO<\/a>. With antsy shareholders, Permira was able to swoop in, buy out early shareholders and turn its transaction business into a subscription business that\u2019s ostensibly far more valuable.<\/p>\n

LegalZoom hasn\u2019t gone public yet or been re-acquired, but \u201cif\u00a0it does go public, it will be a much bigger, healthier company,\u201d\u00a0says Ruder.<\/p>\n

Of course, much of the attention in recent years\u00a0has centered on publicly\u00a0traded tech companies and their tie-ups with PE. Though we generally assume that\u00a0publicly traded tech companies will remain publicly traded, a spate of headline-grabbing deals made last year proved that supposition wrong, including the visual analytics company Qlik Technologies\u2019\u00a0sale<\/a> to Thomas Bravo, and the marketing software company Marketo\u2019s sale<\/a> to\u00a0Vista Equity Partners.<\/p>\n

Now, the streaming music service Pandora is reportedly talking with private equity firms\u00a0to expand its business, too. According to a new report\u00a0in the New York Post<\/a>, the company is talking with Providence Equity Partners, Silver Lake and KKR, among others, sources said.<\/p>\n

Indeed, just as\u00a0private equity firms are searching for new ways to wring money out of tech companies, tech\u00a0companies are increasingly open to taking money from well-heeled PE players. How well-heeled? Reportedly, there\u00a0is\u00a0$820 billion of PE capital sitting on the sidelines right now. That is a lot<\/em> of dry powder. (It\u2019s\u00a0not an apples-to-apples comparison, but in 2015, a peak investing year for VCs, they put less than $60 billion to work.)<\/p>\n

The Financial times sees the amount as \u00a0troubling<\/a>\u00a0for a variety of reasons. Among them: Because PE firms have record amounts of money at their disposal, they\u2019ve been able to borrow nearly unheard-of\u00a0sums from banks, giving them reason to look high and low for candidates and, in some cases, overpay. (Last year, when Vista Equity Partners acquired<\/a> the event management company Cvent, it paid one of the highest multiples ever paid in a private equity takeover in tech.)<\/p>\n

It raises the question of whether many of these deals will make sense in retrospect. Either way, with so much money sloshing around, the\u00a0trend doesn\u2019t look to be ending any time soon.<\/p>\n

Featured Image: VooDoo13<\/a>\/Shutterstock<\/a><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

\"\" If you haven’t being paying attention, private equity firms love them some technology companies. According to new Pitchbook data, one-fifth of all U.S. private equity deals in the first quarter of this year centered on companies in the IT sector. The streaming music service Pandora is reportedly talking with private equity firms to expand its business, too. Read More<\/a><\/p>\n

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