As 2019 begins, Managing Directors Jeff Bistrong and Thierry Monjauze report strong investor interest in subsectors such as education technology, healthcare IT and vertical software with integrated payment modules. They are monitoring technology companies’ bookings growth and revenue retention, as well as the potential impacts on end markets of economic and political volatility.

Below, Bistrong and Monjauze provide their full outlook on 2019, including their advice for private companies, strategic buyers and private equity investors.

Looking Ahead

Within your industry, which subsectors do you anticipate experiencing the highest levels of interest? Why?

Bistrong: Market-leading vertical software solutions enhanced by integrated payment modules continue to be highly attractive to investors, as they provide an incremental, high-margin revenue stream for the company.

I would also include education technology. Across K-12, higher education, and corporate learning, education technology is transforming the delivery of content and outcomes, and we anticipate a number of additional scale platforms coming to market in 2019.

Monjauze: Healthcare IT is another major focus area globally. Healthcare remains in dire need of software tools that can make care delivery, operations, and reimbursement more efficient. That is creating significant opportunities for both investors and vendors in the U.S. as well as in Europe.

Which metrics are you watching most closely in relation to the performance of companies in your industry?

Bistrong: Bookings growth and momentum are important. In recurring revenue software businesses, the ability to grow their installed base through new logos and upsell bookings enables buyers to confidently underwrite forward performance as the appropriate earnings base for a business.

Monjauze: We also monitor revenue retention. The strongest businesses we work with tend to exhibit 95%+ gross annual revenue retention, which provides significant visibility into future financial performance, in addition to being a strong validation of the value that the solution delivers to customers.

Interestingly, given the continued flow of U.S. private equity funding into Europe in the last few years, we have noted that investors from both sides of the Atlantic now have a much more consistent way of measuring success.

Which industry-specific trends or issues are you watching most closely?

Bistrong: Technology, particularly software, should continue to expand across all of our targeted verticals. However, software solutions addressing cyclical end markets will likely be impacted by current market volatility. 

Which geopolitical and/or macroeconomic issues are most relevant to your industry? Why?

Bistrong: There are few geopolitical or macro issues that specifically impact the operations of software companies, unless the current movement toward greater protectionism spills over into non-tangible goods. Instead, the impact will be felt through softness in demand from the end markets in which they operate.

Monjauze: However, we are watching interest rate hikes and potential hiccups in the debt markets, which could impact capital structures for private equity–backed transactions. In addition, while it may not directly be specific to any one industry, the continued uncertainty around Brexit in the U.K. and recent events in Europe are having an impact on overall investor confidence.

Given the length of the current bull market, what should private companies, private equity groups, and strategic buyers be thinking about?

Bistrong: Management teams should be thinking about pricing compression, upticks in cancellations or non-renewals, or other similar elements. Private equity groups should be watching the state of the debt markets, particularly for large deals.

Monjauze: For strategic buyers, the growth and proliferation of uninvested PE capital continues unabated, and financial buyers will continue to win deals by distinguishing on speed and certainty to close. Strategic buyers should focus on developing relationships with logical acquisition targets well in advance of a sale, so they can move quickly when an opportunity arises. Private companies, particularly in Europe, should have a clear strategy early as to whether they want to be a national champion or adopt a broader pan-European strategy.

Which qualities make acquisition targets most appealing in a more challenging operating and investing environment?

Bistrong: Long-term contracts, which provide significant revenue visibility and downside protection. Also, contractual price increases through the life of a contract.

Monjauze: An experienced management team that has successfully driven organic and inorganic growth through prior downturns, and has demonstrated the ability to work through and take advantage of challenging environments to come out even stronger.

Back to the 2019 Outlook From Each Industry Group >