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Traditionally, the Business Communications sector has been associated with providing mobile phones and landlines to SMEs, corporates and enterprises. Given the obsession of present day private equity houses in technology, this would hardly cut the mustard for today's investment requirements.
However, the rapid adoption of IT in the workplace means that the Business Communications sector has been able to break free of its unexciting traditional model and is growing quickly against a highly favourable market backdrop, GVR predicts a 16.8% CAGR in the technology-enabled Business Communications sector between 2019 and 2025.
With technology now a major focus within the Business Communications sector, there is evidence of a wave of service diversification that is driving private equity interest. Providers are expanding their traditional product portfolios to offer a range of technology-based services, such as hosted telephony, VoIP, audio and video conferencing, instant messaging, enterprise software, data connectivity and managed security, many of which are cloud-based.
In this world of converged IT, players in the Business Communications sector are vying to be the one-stop shop for all of their clients' needs. This trusted adviser relationship is particularly attractive to the private equity community because it goes hand-in-hand with sticky revenue streams.
Many of the services now provided by Business Communications companies are subscription-based, resulting in a loyal client base with recurring revenues of 90%+. Combine this with an asset-light business model and you get an ideal candidate for private equity investment.
And this is just the micro view of Business Communications companies. The macro view is the icing on the cake for private equity investors:
These recent price pressures have not affected volumes. In fact, some of the most significant transactions have completed this month in July 2019: