State of IT Security Services and Other Private Market Trends
Panther Equity Insights -- a private equity newsletter covering all things IT & Telecom, Tech & Business Services, eCommerce and Markets.
Happy Thursday folks! Welcome back to this week's edition of Panther Equity Insights, the bi-weekly newsletter from Panther Equity Group.
In this week's edition, we'll cover:
The demand shift for IT Security Services
The recent spurt of software take-privates and what that means for LBOs
Industry Commentaries
Insights from McKinsey’s annual private markets report
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Before we begin, if you’re a company Founder / Shareholder interested in working with Panther, a deal maker interested in connecting or with a deal to share or an Operating Executive looking for a part-time, full-time, or a Board Level Role — feel free to get in touch with us!
Podcast Feature: Panther Equity Group highlighted on Axial’s Masters in M&A Podcast
David Eshaghian sat down with Peter Lehrman of Axial, discussing the journey for founding Panther Equity Group and the independent sponsor landscape today.
Our focus on 'building trust' & 'creativity' continues to be guiding pillars for the team at Panther and are highlighted in the podcast.
Broader Market Chatter
Demand for Security Services is Rising (is it time to make the shift?)
With data becoming the foremost sought-after currency in today’s digital world, cybersecurity is a top priority for companies. Cyberattacks continue to increase among SMBs and Enterprises as it becomes increasingly profitable to do so. Not to mention the security challenges that enterprises face with ‘work from home’ trends, a combination of cloud & legacy on-premise infrastructures, and multi-office company footprints.
There is an opportunity for existing Managed IT Service Providers (‘MSP’s) to transition into Managed Service Security Providers (MSSPs) to meet the increasing demand for security services. Why?
MSPs should view this ‘demand opportunity’ as progress and a signal to either a) start practices in-house, b) acquire a smaller competitor or c) sell to a competitor or financial investor to accelerate the process. IT Providers that do not capture the market risk customer attrition and may face difficulty with increasing wallet-shares with existing customers. Simply put — when it comes to Cybersecurity…companies need to run to just stay in place
For IT Services Operators thinking through an opportunity to provide Security services, the following article highlights the 6 steps that companies can take to pivot into MSSPs:
Formulate a viable plan
Identify and buy the right set of tools
Hire the right staff
Build a SOC from scratch
Reconfigure protocols and procedures
Update and optimize business models
How does Panther think through this opportunity?
Panther is excited by the shifting demand as there will be opportunities to invest & partner with growing IT providers that require capital, de-risking, and/or a strategic partner to navigate the waters ahead.
We are actively seeking investment opportunities where there is an ability to add Security Services to a platform company’s current product offerings. This is a high-impact operational opportunity for VARs, IT Solution / Cloud or Integration providers, UCC Communication companies, and software development shops.
Please feel free to reach out if you’d like to discuss this further.
Software Take-Privates are Low on Leverage
Amongst the SVB collapse, a few deals announced earlier last month highlighted the shift to low-leverage LBOs. According to Pitchbook, the firms financed deals with a debt ratio of only 10-50%, well below the typical range of 60-80%. As noted:
Qualtrics sale to Silver Lake & CPPIB for $12.4B
debt: $1B credit facility
Momentive Global buyout for $1.5B
debt: $450 million debt commitment
Cvent buyout by Blackstone for $4.6B
debt: $1B
This is no surprise as debt financing has become harder to underwrite and ‘afford’, especially at the upper end of the market. With traditional banks becoming more cautious in their lending practices, PE players are looking for novel capital deployment strategies.
These deals also highlight the growing appetite for take-privates as public valuations continue to soften in the current high-rate environment.
We’re Looking For Deals 🎯
Our team is focused on making investments within the IT & Telecom Services, Technology Services, Business Services & eCommerce verticals. Along with our operating partners, we have decades of experience within the mentioned verticals paired with a vast network of experienced operators and LP investors.
Size: EBITDA of $2 million – $12 million / $10M to $100M enterprise value
Geography: U.S. or Canada headquarters
Target Transaction: Majority, significant minority, and structured equity investments
Business Profile: Founder or closely-held ownership with an experienced management team
If you’re a Founder / Shareholder interested in working with Panther, or an intermediary with a deal to share — feel free to reach out and get in touch with us! We are happy to compensate fees to intermediaries & referrals at market levels.
Industry Commentary
Private Equity
Operational insights
eCommerce: Lavin Group earnings Breakdown
After last month’s rate hike, the response by leading banks was not very positive. Many continue to expect a tighter environment with more challenges in deploying capital.
IT Services: IT services industry looks to cyber, and cloud consulting for growth
Private Market Movements: 2023 Outlook
Add-ons Fueled Buyout Volume in 2022, Will the Trend Continue?
‘Buy-and-build’ strategies have long been favored by PE shops, and 2022 was no different. According to McKinsey’s 2023 Private Equity Outlook, add-on acquisitions accounted for 72 percent of all buyouts globally, with the largest concentration in North America.
Add-ons represented 49 percent of the total buyout deal count in 2009, increasing to 68 percent in 2021. Thanks to rising rates, slowing economic growth, and eager sellers, 2023 looks to be no different. They have increasingly served PE buy-and-build strategies as dealmakers create large, high-multiple platforms from small, lower-multiple acquisitions.
How does Panther think through this?
‘Buy & builds’ remain a great path for some platforms however more caution is warranted now more than ever. Buy & builds mean i) more debt utilized to finance each ‘add-on’, ii) integration distractions and risk, and iii) some management teams in the ‘lower mid market’ do not have experience with post-M&A integration or absorption. Panther and our Operating Partners are currently looking to underwrite opportunities with ‘organic growth’ levers only (i.e., Services, Products, Geographic expansion etc.) and will selectively explore ‘add-ons’ for a thesis where truly warranted.
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About Panther Equity Group
Panther Equity Group is a private equity sponsor seeking to provide capital, strategic support, and resources to healthy & well-positioned private companies in the lower middle market. We typically focus on companies with $2 million - $12 million in EBITDA and seek to make majority or significant minority equity investments.