The IT sector is closely intertwined with private equity. Investments in software and IT service providers play a prominent role in the strategy of many funds, and IT entrepreneurs are involved in an above-average number of transactions with investment firms. In this article, we take a closer look at the sector and explore why this is the case—and how IT entrepreneurs are now reinvesting in their own sector through the funds of Marktlink Capital.
Few sectors have such a strong connection to private equity as the IT sector. Anyone who regularly reads the annual reports of major consultancies like Bain and McKinsey knows that this sector is well represented in the investment category: in recent years, deals in this space accounted for around a quarter of total deal value and about a third of the number of deals. Looking at it from the other side, the difference is even more striking: a very large share of mergers and acquisitions in the IT sector involves private equity. All in all, we're talking about hundreds of billions in invested capital.
The “Playbook”
When it comes to IT, investments typically follow two main tracks. On one side, you have software developers; on the other, service providers.
Each path has its own business model and reasons for being attractive to private equity as an asset class.
For software developers—especially in “Software as a Service” (SaaS)—the focus lies in scaling an existing company using capital from an investment firm to execute a growth strategy. A term commonly used here is the “playbook”: a structured, step-by-step plan used to guide the company through its growth process.
Key elements of such a plan often include international expansion, building a sales team, optimizing pricing, and implementing a subscription model. The latter is particularly appealing to investors, as subscriptions generate recurring revenue.
Then there are the service providers—the companies that lay the cables, install modems, and set up the cloud systems that underpin both businesses and governments. Often, these are licensed partners of systems like Microsoft’s Azure or SAP. These businesses usually start locally, with a strong regional focus or expertise in a specific market. Organic growth—growth without acquisitions—is often difficult due to a lack of talent, capital, or local market knowledge. Private equity addresses these issues by using external capital to combine multiple players in the same market into a larger company. This integration process brings service providers together into larger groups with shared services such as finance and HR. This is known as a buy-and-build strategy, where several similar companies are merged into a broader group.
Of course, this is a simplified representation of the market, and every investment case is unique, but these two models have largely enabled the explosive growth of IT in private equity in recent years.
Invest in What You Know
If you attend a Marktlink Capital event and chat with a group of investors, it quickly becomes clear that many of them are (former) IT entrepreneurs. A significant portion of them have encountered private equity in their own businesses or through peers, sparking curiosity about investing in private equity themselves. Looking at Marktlink Capital’s portfolio, we indeed see strong investment activity in IT across multiple levels.
First, we invest in generalist funds that allocate capital across various sectors, including IT. Examples include Waterland and CVC. Second, we invest in specialist funds—those focused exclusively on IT companies—such as Main Capital and Hg Capital. We also work with secondaries funds like ICG, which trade in existing positions in companies and funds, including IT-focused and generalist portfolios. Additionally, we make direct investments in outstanding IT companies as part of our co-investment strategy. One example is Visma: this IT powerhouse is pursuing a robust growth trajectory under the wing of Hg.
By investing in Marktlink Capital’s fund-of-funds, entrepreneurial IT professionals are able to reinvest in companies in a sector they know well—founded by ambitious entrepreneurs and supported by the best investment firms in Europe and North America. This aligns perfectly with Marktlink Capital’s core value: “Invest in what you know.”
