| Challenges remain, but PE middle market activity keeps an unprecedented pace | | The US PE middle market kept roaring along in Q2, posting a third straight record-breaking quarter for dealmaking activity.
GDP growth, the impending capital gains tax hike, and an ample supply of debt from direct lenders continued to drive a risk-on environment for capital deployment.
Many investment banks' pipelines are now full through the end of the year.
The breakneck pace of capital deployment has also compressed the fundraising cycle. Firms are rapidly returning to market with new funds.
To be sure, we're also watching some storm clouds on the horizon.
One is the Delta variant of the coronavirus, which has slowed economic recovery, especially for smaller businesses. As a result, we're seeing fewer small companies exit to strategics than we'd otherwise expect.
Another is intense labor shortages in industries from manufacturing to hospitality to healthcare.
This is driving consolidation and creating deal opportunities for companies that can improve hiring and retention or automate low-skilled jobs.
Finally, although the outlook for emerging managers has improved relative to 2020, fundraising competition remains fierce for many smaller and younger firms, as LPs look to simplify their commitments and the largest firms launch more middle-market products.
Despite these challenges, we expect runaway dealmaking to continue—even accelerate—through the end of 2021: We also dive into how ESG themes are beginning to play a greater role in mid-market buyout strategies.
Feel free to reach out with any questions or feedback, or if you would like to discuss the research.
| | | | | | | | | | Where IoT use cases are growing and VC funding is lagging | | IoT is finally maturing.
That's the industry consensus, considering the false starts of years past and recent catalyst of pandemic-spurred digital transformation.
In a high-growth industry, we expect to see a high rate of reinvestment in innovation and M&A. Also, revenue should grow for data analytics vendors that make sense of the mass of newly deployed devices.
Our data suggests that promising startups are struggling to scale and achieve significant exits, with the greatest valuation growth in the IoT VC ecosystem flowing from adjacent markets including information security and semiconductors.
Our latest IoT research revises our growth forecasts and deal tracking statistics, finding that all subsegments are bouncing back from pandemic lows in revenue growth.
Manufacturing & supply chain and connected vehicles continue to stand out, given these sectors' roles in the reopening of the economy.
The data identifies the sensor and software applications that startups are best positioned to address. We also assess where strategic investors are most closely focused.
In particular, we find IoT/OT security, edge AI (with some techniques referred to as TinyML), and predictive maintenance are fueling high valuation growth for startups.
Our select company highlights open a window on the influence of these trends for leading private companies. Industrial analytics unicorn Uptake is emerging from a period of low growth to take advantage of digital transformation.
Ambiq Micro is embracing the edge AI opportunity with its low-power microcontrollers. And Samsara is finding connected vehicles an anchor for its smart cameras and industrial IoT software.
Our full analysis and data are available to clients only, but non-clients can read an executive summary.
If you have a PitchBook log-in, get the research here.
Don't hesitate to reach out to discuss any of these topics or companies further.
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FINTECH: These days, the numbers around VC and fintech are simply staggering.
More than $30 billion was deployed into the space last quarter alone, which soared past the previous record set in Q1.
Exit activity has been equally jaw-dropping, as capital exited in the first half of the year exceeded the previous decade-plus combined.
Our new client-only research captures the key highlights but also identifies new opportunities emerging in the wide world of fintech: - While Brex and others have developed expense and cash management platforms, treasury automation startups provide a more holistic view of a company's finances with features like continuous cash forecasting, transaction categorization and automatic reconciliation.
- In a world where speed and convenience are increasingly important, we expect faster checkout solutions to become prevalent at any point of sale, both virtual and in stores.
- Startups providing core banking technology can penetrate the highly concentrated legacy services by providing cloud-native, API-based solutions to banks seeking to modernize.
| | | | | | CLOUDTECH/DEVOPS: The growth of cloud computing continues to create opportunities for the startups helping businesses build, deploy and scale software applications and infrastructure.
Our latest client-only DevOps research dives into this important subset of the enterprise tech: - After another massive quarter for VC investment, this year's aggregate capital raised has already surpassed 2020's total and is on pace to set an extraordinarily high annual record.
- The rise of container adoption is driving more management complexity. GitOps has emerged as one approach to help scale the use of containers, but it remains relatively nascent.
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A few more speaking engagements for your calendar: - Sept. 24: Analysts Rebecca Springer and Hilary Wiek will speak at a Born Global event that discusses the topics of emerging, diverse, and impact managers. Details here.
- Sept. 28: Join our EMEA private capital analysts Nalin Patel and Dominick Mondesir as they cover how and why the European VC and PE environments are already setting records this year. Register here.
- Oct. 6: How are PE strategies changing around healthcare services? We're hosting a webinar with professionals from The Bloom Organization, McGuireWoods and Bailey Southwell & Co. Register here.
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AI & machine learning analyst Brendan Burke weighs in on 3D Systems' $180 million acquisition of Oqton, an AI-powered software company that serves the manufacturing industry.
"This acquisition deal value is the highest we have tracked in industrial AI during 2021.
"Oqton uses AI to optimize factory assets such as additive manufacturing units—also referred to as 3D printers.
"Manufacturing assets along assembly lines have distinct software programs that can be orchestrated with intelligent automation.
"Prior to this acquisition, Oqton closed the highest Series A deal value in industrial AI we have tracked outside of China since 2017.
"We believe that legacy manufacturing execution systems are focused on neither additive manufacturing nor AI design automation, which creates an opportunity for 3D printing incumbents to develop an operating system for industrial generative design.
"Industry surveys show that manufacturing customers are the leading adopters of AI-enabled IoT strategies.
"3D Systems Management disclosed that the acquisition is not expected to contribute significant revenue in 2021."
| | Brendan Burke
Senior Emerging Technology Analyst
AI & Machine Learning | | | | | |
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Our insights and data featured in the press: - Can ultrafast delivery become a sustainable business model? And if so, will consumer demand persist in a post-pandemic world? [WSJ Video]
- How China quietly grew into a biotech powerhouse. [Insider]
- Up-and-coming PE managers don't always outperform, but they may have more room for error. [Institutional Investor]
- Why banks won't be left out when it comes to decentralized fintech. [American Banker Podcast]
If you're a journalist interested in interviewing our analysts or requesting data, contact our PR team. | | | | | |
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Highlights from our other research content published this quarter:
Market updates Thematic research Emerging Technology Research (free previews) Coming next week (subject to change) - NEW: Sustainable Investment Survey Report (sneak peek!)
- VC Pricing Varies by Ecosystem
- SPAC Market Update
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| | Since yesterday, the PitchBook Platform added: | | 343 Deals | 1704 People | 507 Companies | 22 Funds | | | | | | |
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