How the Virus Is Bringing Tech Innovation to the Forefront
The effects of the COVID-19 pandemic have been undoubtedly tragic and will leave a lasting impact on society as we know it. While the virus has brought aspects of the retail, travel, and sports industries (to name a few) to a screeching halt, other sectors have been much more resilient, and many technology companies continue to thrive.
Based on our conversations with industry executives and investors, we have identified technology sub-sectors that are experiencing net positive benefits during this time, which include:
1. Business Critical Software–Applications like ERP, EHR, disaster recovery (core to keeping any business running)
2. Virtualization–Enabling work-/study-from-home environments
3. IT Infrastructure–Foundation to empower the virtual world
4. Cybersecurity–Of utmost importance as our endpoints connect to less familiar/secure networks
5. Marketing Tech–Focused on digital mediums, allowing companies to stay in front of their audiences even when “sheltered-in-place”
While these sectors are not making headline news every night, the importance and value proposition that these businesses bring during the global pandemic should not be overlooked.
IT Infrastructure Is Not Only Critical but Essential, Here’s Why
According to a recent panel of cloud hosting executives, the digital transformation wave and movement to the cloud are expected to accelerate due to recent events, generating significant new demand for Infrastructure-as-a-Service (IaaS) providers over the next 24 months. Clients have increased their capacity with IaaS partners while signing long-term contracts, implying that they expect the “work-from-home” trend to become a new reality. Even colocation clients are leveraging the services of smart hands to make their data center operations a step more remote. But the true test for IT Infrastructure during this time has been network resiliency, as shelter-in-place orders have led to massive bandwidth spikes related to content streaming, videoconferencing, and gaming. While overall performance has fared well, the industry has observed network upgrade projects being pulled forward, particularly in the Education sector to facilitate at-home learning.
A Surge in Software and Tech Services Could Be the Silver Lining
Intrepid’s Software & Services team has been actively working with clients and prospects in these sub-sectors, and we see a silver lining for such companies in these unprecedented times. In speaking with the tech-focused investor community, the appetite for quality deals remains high as private equity firms have an abundance of capital, with $1.45 trillion of dry powder to deploy. Of particular interest are growth equity and minority recapitalization opportunities, allowing companies to unlock new growth avenues or liquidity without reliance on leverage. While the number of completed deals may slow in the near-term, we remain optimistic for the middle-market Technology sector in the second half of 2020 and beyond.