Private Equity Technology Trends in 2023

As we approach the midway point of the decade, the private equity landscape continues to evolve rapidly.  From the intensifying 'deal battles' to the burgeoning interest in niche sectors and emerging markets—here's your definitive guide to understanding and navigating the shifting currents of private equity in 2023.

Why Should You Care About Technology Trends?

The pandemic has been a catalyst in accelerating technology adoption in the private equity sector. Firms now leverage AI-driven tools to identify potential investment opportunities, and virtual due diligence has become more mainstream. 

Technology isn't just facilitating operations—it's becoming a central part of the private equity investment process. There’s not a successful equity firm on the planet that doesn’t extensively invest in some form of trendy technology. 

Emerging Opportunities

Emerging markets like Asia and Latin America are becoming the new frontier for private equity. With their vast untapped potential and rapid economic growth, these regions offer promising opportunities for private equity firms ready to navigate their unique challenges and complexities.

New markets also mean more tech companies to collaborate with. These new voices and perspectives could give companies far more innovation than they ever could have had they not expanded their horizons. If nothing else, it’s a fascinating learning experience.

Survival Tactics

In this volatile environment, being a private equity firm demands more than just the ability to secure investment opportunities. It requires a distinct edge. With the market swamped by competitors, firms must find ways to stand out.  That also means taking a good, hard look at their current tactics.

By using technology to reduce the frequency of human error, finding niche markets to cater to, or just generally making things go faster, firms ensure their survival in a fast-paced digital economy.

Niche Appeal

The heat in conventional sectors, such as technology and healthcare, is on the rise. As a result, private equity firms are increasingly turning their attention to less saturated sectors, or "niche sectors”. Strategies could include targeting niche sectors with predictive analysis. 

Since these sectors are less frequented by their peers, a strong track record of generating returns to entice investors blooms.  Building robust relationships with influential players in the industry is key as it ever was, but technology makes it way easier to find these players.

Healthcare Interests

While niche sectors, in general, are on the rise, one industry you need to be looking towards is healthcare. With an aging population, rising healthcare costs, and continuous advancements in medical technology, the healthcare sector is becoming an area of interest for private equity firms.  

Specialty private practices, Dental Support Organizations (DSOs), and life sciences are sub-sectors likely to attract significant attention as they offer promising opportunities for growth and profit. Technology can help you prioritize which of these sub-sectors are performing most effectively.

Deal Battles

The private equity landscape in 2023 is set to be a hotbed of aggressive competition. The fight to secure lucrative deals will be more intense than ever. Various factors are fueling this scenario— a considerable reserve of 'dry powder' implies a large pool of uninvested capital that firms are eager to allocate.

There's a skyrocketing demand for yield as investors seek higher returns; the number of market participants is surging; and we see a distinct trend toward larger buyouts, as firms aim for bigger targets to achieve higher profits. Technology’s role in this is analyzing the huge swathes of information and giving firms the best possible decisions, based on cold, hard data.

ESG Imperatives

ESG (Environmental, Social, Governance) considerations have moved from the periphery to the core of investment decisions.  The investment community has grown more conscious of its social and environmental footprints. 

Firms are expected to increasingly incorporate ESG criteria into their decision-making process. This trend also extends to encouraging portfolio companies to undertake initiatives aligning with ESG principles. Technology’s role in this is how it streamlines the process, making overall resource usage lower. 

Public Investments

Private equity's relationship with the public market is undergoing a shift. Traditionally, activist investors used private equity strategies to invest in publicly traded companies. 

Now, this strategy is becoming more popular with traditional private equity firms as they spot opportunities in publicly traded companies that are underperforming or undervalued. Once again, predictive analytics plays an important role in this sort of guessing game.

Lending Rise

Lastly, there's a rise in direct lending or debt funds to keep an eye on. As private equity firms strive to diversify their portfolios and achieve sustainable returns, direct lending has emerged as a viable alternative. This trend, which has been gaining traction in recent years, is expected to continue its upward trajectory in 2023.

Direct lending technology was particularly successful during the COVID-19 pandemic. The era of remote everything meant that private equity sponsors were sitting on a lot of dry powder. They needed debt to start funding new acquisitions, hence all the innovations in this sector.