New York, August 29, 2024 – Private equity firms continue to outpace corporate investors in niche market segments, as sector specialization grows as a prominent investment strategy.
Highlights from the new 2024 Sector Dynamics Report from SPS by Bain & Co. demonstrate the competitive edge sector-focused funds experience as they strive to outperform in a crowded market.
The report examines evolving M&A trends through sector and sub-industry analysis, demonstrating how data-driven strategies empower firms to identify opportunities, mitigate risks, and enhance their competitive positioning.
Private equity investors have increasingly overtaken corporate investors in active sectors over recent years – particularly within the Consumer, Financial Services, and Healthcare sectors, which have seen a notable year-over-year increase in private equity-backed deals since 2020.
In the three most active sectors—Industrials, Technology, and Business Services—private equity buyers have consistently surpassed corporate buyers in total deal volume over the last five years.
Deal activity among the most active sponsors is heavily concentrated in the top four sectors by deal volume. PE firms are particularly active within the Financial Services sector, driven by an increase in roll-up strategies over recent years.
The shift toward a sector-focused approach and the rise in add-on strategies have driven significant add-on activity in niche industry groups. Financings have continued to grow as a prominent investment strategy in Technology – Software, while Industrials – the most active sector – experiences a balanced blend of buyout and add-on activity.
During the 2021-2022 deal flow boom, heightened competition led to broader sales processes in active sectors like Consumer, Technology, and Business Services. However, some of these sectors have since reverted to pre-pandemic levels, with more limited and moderate sell-side processes.
As firms have honed their specialized investment theses, niche and high-growth industries have become prime opportunities for private equity. Engineering Services & Consulting, Property Services, and Private Banking have seen an increased concentration of deal activity in the LTM 2024 period. Meanwhile, other verticals like HVAC, Homecare, Supported Living, & Residential Centers and Education Software have experienced a slowdown during this period.
The report also dives into a granular evaluation of deal activity in four high-growth or recently disrupted subindustries, including insights into the deal volume trends, active player, portfolio holding periods, and more. For example, deal volume in Home Services has surged by 35% and 16% year-over-year in the past two LTM periods ending June 30, respectively.
For more insights from the SPS 2024 Sector Dynamics Report, click here.
