Breakingviews: EQT strikes a deal for post-Covid tech hangover

Dealmakers might be emerging from their bleary post-pandemic technology hangover. Though stock prices for companies like digital consultancy Perficient have sagged for some time, buyouts have been sparse as private equity recovers from a high-priced binge. If Perficient’s $3 billion sale to buyout shop EQT on Sunday is any indication, it could be time to pick up the pieces.

The exit from Covid-19’s depths saw a giddy rebound for tech firms. The BVP Nasdaq Emerging Cloud Index spiked 75% between March 2020 and 2022. Delirious optimism attracted private equity firms stocked with mountains of dry powder and cheap debt. Information technology accounted for more than a third of the $683 billion in deals buyout shops struck in 2022, up from 10% in 2012, according to Preqin. Valuations similarly spiked, with tech companies changing hands for a median of nearly 19 times EBITDA in 2021, up from under 14 times in 2019, the research outfit reckons.

As rising interest rates choked off fundraising and refocused investors on profitability, everything slammed into reverse. Tech dealmaking saw its sharpest drop-off in decades in 2023, according to S&P Global. High-flying deals disappeared, with multiples paid sinking to around 6 times.

Perficient was not spared: Shares fell 71% from their highs until Bloomberg reported in April that the company was exploring a sale. Such swings should invite bargain hunters – if sellers adjust to their new reality. Perficient had over two years to digest the decline from its peak.

A hefty 75% premium helps, translating to a price of 15 times the company’s expected EBITDA for 2024, according to LSEG. But it isn’t quite as generous as it looks – it’s still well below Perficient shares’ pandemic high, and just on par with the multiples at which larger peers like Accenture trade.

EQT, for its part, stands to gain even if nothing changes. If it sells in five years at the same multiple, returns could hit roughly 15% if Perficient’s revenue simply grows at the same rate that analysts expect through 2026, Breakingviews calculates.

Of course, this deal depended on finding a willing seller trading cheaply, where paying a big premium doesn’t wreck the math. But valuations have been down for a while now, and sellers may be adjusting: globally, the number of tech deals rose 42% in the first quarter, Reuters reported in March citing Dealogic data. Buyout barons can now deal from a position of strength.