BluWave, the business builders’ network for private equity grade due diligence and value creation needs, today released its Q3 BluWave Activity Index report, which tracks PE firms and their portfolio companies’ activity across both categories. It shows that while human capital continues to be a foundational activity, hiring is cooling. At the same time, they are aggressively ramping up investments in data and technology, as well as sales and marketing efforts.
From a broad perspective, though M&A activity has continued to slow, value creation activity remains robust, accounting for 69% of overall activity within the BluWave Activity Index versus 62% in Q3 2021. Firms are being more selective with market opportunities and are choosing to focus on deals in sectors that historically thrive in downturns such as software, business services, and healthcare. And as PE firms embrace opportunities created by economic dislocation, the industry is surrounding their portfolio companies with resources to help them succeed amid the turmoil and act on unique opportunities that present while others become paralyzed.
Other trends within value creation that BluWave is supporting include robust sales and marketing activity around pricing strategy, digital marketing, go-to-market strategy and an intense focus on portco add-ons.
“Private equity firms generate some of their best outcomes during times of perceived higher risk like the present,” said Sean Mooney, Founder and CEO of BluWave. “BluWave’s recent data shows how, as expected, PE is playing many moves ahead right now, taking precipitative action to support the safety and success of new and existing investments.”
Human capital activity remains robust at 36% of all PE activity in Q3 2022, though it has moderated from 39% the same time last year, as firms more carefully manage through this economic transition. BluWave is seeing heavy demand for specialized recruiters and PE-grade interim executives as PE firms aim to be more agile, selective and hiring for requisite skills.
The BluWave Activity Index also shows meaningful movement in sales and marketing activity year-over-year, ticking up to 9% in Q3 2022 of all PE activity supported by BluWave compared to 7% in Q3 2021. As the economy softens, the PE industry is doing its best to resist the downward pressure on sales by bringing in expert resources that can help generate as much growth as possible.
Additionally, the BluWave Activity Index reflects a surge in technology activity, which roughly doubled from 8% in Q3 2021 to 15% in Q3 2022 in response to macroeconomic and industry specific trends. Driving the increase is continued PE investment in the software sector with its dependable, subscription-based recurring revenue models. Increasing cybersecurity risk also has PE firms desiring stricter security requirements for potential investments. And to keep pace with expanding digitization post-COVID and to drive efficiencies, portfolio companies across industries are bringing in third-party resources to assist with a range of enhanced systems, data and analytics capabilities.