There is no denying the prevalence technology has taken within the modern world. From artificial intelligence to software-as-a-service to cryptocurrencies, 2022 will certainly see a continuation of trends that had already begun to take shape and were further accelerated by the coronavirus pandemic. As businesses were forced to rapidly pivot from the physical world to the digital one, the line between companies that involve technology and those that aren’t have become increasingly blurred.
Within the private equity world, the last two years have been big for tech investments. The data provider Dealogic found that in 2020 transactions in tech represented 41 percent of overall private equity deals, and the tech-deal value for last year was more than double that of 2020, the highest since the firm began tracking the data nearly three decades ago.
According to Mark Hauser, founder, and co-managing partner at Hauser Private Equity, COVID-19 drove greater digital adoption across all aspects of life. As a result, even private equity funds that have historically avoided the trendy (and sometimes frothy) tech market may use this year to identify strategies within their firms to address the increasing prevalence of tech in practically every other industry. Below are a few more expectations for the way 2022 will shake out for tech and private equity.
Emerging technologies taking a foothold
Within the last five years, there have been significant advancements in information technologies. Artificial intelligence (AI), machine learning, the Internet of Things (IoT), big data, and advanced analytics are increasingly becoming more accessible, allowing more businesses and brands to leverage the wealth of digital insights they provide.
For a number of years, software-as-a-service businesses have been seen by many firms as ones that can bring steady returns due to their reliable business models of recurring revenue and typically high gross margins. With almost endless applications and the ability to enable businesses from across the spectrum to become more technology-enabled, SaaS will likely continue to trend.
Data is another area that is proving to be of increasing interest to investors. With the technologies available today, businesses have no excuse to not be data-driven in their decision making, collecting, analyzing, and interpreting data into real, actionable insights. This market – particularly in the United States and Europe – is proving to be one of the more promising ones for 2022.
Biotech is also making waves for its potential to become the next industrial revolution in human history. The most obvious example of this would be the advancements in mRNA technology that saw the rapid development of the COVID-19 vaccine, but this is just one of the many promising engineering feats in healthcare. When combined with the aforementioned technologies such as artificial intelligence, industrialization across biopharma and healthcare will continue to solidify the growing biotech market in the new year.
Perhaps one of the biggest overall trends in 2022 will be sustainability, and tech will certainly not be immune to the scrutiny. In just the first half of 2021 climate tech start-ups in sectors such as carbon, energy, food and water, industrial and mobility raised over $15 billion, and the next year will certainly see these numbers further grow. Europe is the region that has been investing in climate fastest, but the United States is chasing its tail and does not show signs of slowing down.
Additionally, the speed of deployment for renewable energy is set to outpace other energy sources in 2022 thanks to tech innovations and solutions in addition to policy support. As severe weather events continue to grow more frequent, mitigation efforts will need to be taken by government entities, leading to increased government spending and driving competition for the sector.
The coronavirus pandemic has only served to further emphasize the importance of sustainable initiatives when it comes to the future of the planet. Technologies that aid in advancing scientific research and promote breakthroughs in sustainability are sure to be trending as the entire globe works to mitigate the effects of global warming and counteract environmental threats.
Investing with discernment
There has been much talk about private company valuations in recent years, and although many investors are bullish about 2022’s tech investing prospects others worry that the high valuations may inhibit strong returns. The hype of start-up culture and tech investing has led to some saying that valuations are looking frothy in particular areas such as European financial technology, wealth technology, and real-estate technology.
This year, it is likely that hard truths from the failings of previous tech investments will create a more discerning market overall; one that pays attention to the aforementioned trends and passes on deals if the valuation doesn’t hold up to scrutiny. Whereas before an average business in the tech industry may get an exceptional valuation due to its positioning, as interest rates rise this frothiness will begin to subside, although businesses with proven results will continue to see very full valuations.
While private capital investment originally came about in part because it was believed that by being kept out of the glare of public scrutiny these businesses would have the time and space to produce better returns. However, as ESG concerns grow in popularity among public companies and the sustainability of a business is increasingly linked to its sustainable environmental, social and governance positions, things may change this year. In order to continue receiving capital, tech companies in the private market will need to hold themselves to similar standards to that of their publicly traded peers.
About Hauser Private Equity
A Cincinnati-based hybrid private equity fund manager, Hauser Private Equity has invested over $300 million in capital in privately-owned businesses since its inception in 2008. Hauser Private Equity’s central focus is on direct co-investments in the lower-middle and middle markets, targeting verticals including healthcare, consumer goods, industrials, and financial & business services. It has partnered with over 50 private equity funds in total, mostly with control buyout funds but also selectively with managers of growth equity and special situation funds as well The firm was founded by Mark Hauser, who is a co-managing partner and oversees its capital formation and investment selection. Hauser Private Equity also has operating offices in Los Angeles and Chicago.
About Mark Hauser
Mark Hauser, founder, and co-managing partner of Hauser Private Equity started the company nearly 15 years ago as a continuation of his successful strategy at Hauser Capital Partners.
A native of Cincinnati, Hauser attended Miami University where he earned a Bachelor of Science degree in finance from the Farmer School of Business. He has held a number of positions within the world of business and investment banking, including vice president at the investment services firm Reynolds Dewitt Securities where he was instrumental in the public offerings of companies such as Mid-American Waste Systems, Health Images, and Future Healthcare.
In addition to Hauser Private Equity, he founded HAUSER Inc. (formerly The Hauser Insurance Group) a national risk advisory and insurance brokerage firm. Over the course of its nearly three decades in business, under Mark Hauser’s direction, HAUSER Inc. has transformed from a small local insurance agency to a full-service brokerage firm operating on a national scale.
With over 35 years of experience in investment banking and company operations, Mark Hauser has served on the board of directors for numerous brands, including those in the consumer goods and food & beverage brands. He has also held board positions for government-contracted security & defense, digital advertising, and textile manufacturing businesses.