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Private equity loves SaaS right now

Good morning! This Tuesday, private equity loves it some SaaS, Facebook was a trillion-dollar company, The Rock might be going to space, and who would you rather fight: 100 tiny Elon Musk statues, or one giant Elon Musk statue?
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Private equity is roaring back into the world of enterprise tech. 2021 has already topped last year in terms of overall investment — which perhaps isn't too surprising, given the unknowns created by COVID-19. But with more activity expected, it also seems poised to surpass the last several years.
Private equity firms have invested $16.1 billion into software companies over 105 deals so far this year, according to data compiled for Protocol by PitchBook.
And private equity also appears to be getting better at managing software investments. "The private equity playbook is becoming more creative, more diversified. There are more options that firms are taking advantage of, in terms of minority investments, doing more transformative M&A through buyouts, working on longer holder times," said PitchBook analyst Rebecca Springer.
Interest in the space isn't new, but it is getting hyper-competitive. And not just between rival firms. Venture capitalists, hedge funds and mutual funds are all on the software bandwagon.
Still, many of private equity's tried-and-true methods remain prevalent in software today, namely the hunt for smaller acquisition targets that can be folded in to add capabilities or customers. That was evident when, the same day KKR and CD&R took over Cloudera, the company announced it was purchasing Datacoral and Cazena.
Some potential issues are bubbling up with the gobble-them-up mentality. Valuations are ridiculously high right now. And while a market downturn would likely create a huge buying opportunity for private equity firms, some in the industry are pushing for an improved operating model.
But the biggest threat may be the number of investors on the hunt for the next big software bet. The seemingly limitless funding available for enterprise tech companies, though, means a huge proliferation of vendors in the market. "It's definitely more competitive," Thoma Bravo Managing Director Scott Crabill said. "But there is also so much more opportunity now than there was 10 to 5 years ago. They counterbalance one another."
— Joe Williams (email | twitter)
A version of this story appeared today on Protocol.com. Read it here.
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