Privitas will publish its “Portco IQ Report: Technology 2024” report on November 22nd, benchmarking technology companies with total enterprise valuations (TEVs) over $1 billion that private equity firms exited during the first three quarters of this year.

In Privitas’ 15-firm sample of such companies, four firms performed well enough to achieve a “Grade A”, meaning they were top performers across financial performance, operational efficiency, market positioning, and talent and governance: QGenda (Francisco Partners), Exosens (Groupe HLD), Recorded Future (Insight Partners), and AffiniPay (TA Associates). 

All four of these firms are software companies, half of them exited to a strategic acquirer (Exosens exited via an IPO in June and AffiniPay to another sponsor, Genstar, in July) – an interesting phenomenon, given that over 80% of Grade B and Grade C firms exited via a sponsor-to-sponsor transaction, implying both that high-performing firms have more exit options and that exits to strategic acquirers achieve higher TEVs at exit.

“There is a glut of PE-backed companies trying to exit at the moment, and the top performers financially and operationally are more favored by strategic acquirers,” explained Cooper Smith, managing director at Privitas and author of the report.

However, there could also be inverse causality here: perhaps those four firms were the highest performing for TEVs because of the exit route they chose.

“To increase the likelihood of exiting to a strategic acquirer or via a mutually beneficial sponsor-to-sponsor traction, operating partners and portco executives should focus on delivering meaningful value creation during the holding period,” Smith added. 

He stressed that this would be most important for exits to other sponsors: “Financial sponsors on the buying end of a sponsor-to-sponsor transaction will generally approach deal terms with more scrutiny than strategic acquirers.”

Indeed, this was something Smith found in Privitas’ inaugural report, "Sponsor-to-Sponsor Exits 2024", which analyzed a selection of PE-backed firms that were exited in Q1-Q3 2024 with TEVs over $100 million. Amongst other things, Privitas data showed that companies with lower enterprise value expansions across all asset classes were far more likely to follow a sponsor-to-sponsor exit path during this period.

Dubbed the “strategic premium,” large corporations have proven that they’re willing to pay large sums for companies they deem to be strategically necessary for their growth – and given that key market players assume that the number of strategic acquirers will increase by the end of the decade, this phenomenon will likely continue to dominate top exits seen in the PE market. 

The report is the second research report from Privitas, a business intelligence firm for private equity operations. Members will be able to read the full report tomorrow. Future reports will tackle portfolio company benchmarks using our proprietary Portco IQ index, as well as sector-specific and cross-industry trends.