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Private Equity Technology Investments Outperform Traditional Sectors

Realized technology investment returns spiked last year as the sector gained further momentum, writes Chris Godfrey, president and chief product officer at CEPRES

Technology investing in private equity, already a hot sector before covid, gained further momentum during 2020, according to the latest analyses from CEPRES Market Intelligence, a digital private market investment data solution.

The data shows further increases in capital flowing to tech investment deals and away from traditional sectors, combined with increased returns and thriving fundamentals. Almost 50 percent of all private equity deal capital flowed into tech deals during 2020, while non-tech-focused industrials fell significantly. During recent years, private equity-backed tech deals produced strong returns at the top of the market.

During 2020, the sector significantly outperformed when evaluating already realized deals, coinciding with some of the highest revenue growth rates and peak EBITDA multiple pricing on deals. Additionally, CEPRES data also shows that whereas traditional private equity-backed companies exhibit reducing returns as leverage increases, within technology investments in private equity, high pricing and leverage are correlated to the best performing deals.

We already knew that private equity-backed tech investments had solid fundamentals going into covid, and public market data has shown covid gave further tailwinds to the sector. Now, we have the private market data to truly prove this thesis and have the right data to underwrite post-covid investment strategies for both LPs and GPs.

This article originally appeared in Private Equity International's Investing in Technology report. View original.

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