From recurring revenue to sticky customers: The trends driving tech sector issuance | White & Case LLP


  • Leverage bank loan know-how and laptop or computer-associated issuance in Western and Southern Europe just about doubled from yearly pre-pandemic ranges to €19.9 billion by the finish of 2021
  • Engineering and computer-related substantial generate bond issuance in the location hit an all-time high of €7.3 billion by the end of 2021
  • Commence-up financial debt issuance in Europe experienced already arrived at a file once-a-year complete in advance of the finish of Q3 20211

Europe’s technological know-how business went from toughness to power in 2021, with M&A and lending activity in the room flourishing as investors across a number of asset lessons tapped into the tech sector’s non-prevent progress and resilience.

The change to house doing work owing to COVID-19, as properly as the rise in digital discovering and on line buying and leisure by way of each 2020 and 2021, drove earnings progress across the total engineering sector.

Harmless and secure technology was a must-have in just about every dwelling, which ensured that tech firms were kept chaotic, lifting revenues and prompting tie-ups. This in flip created opportunities for cybersecurity firms—Dealogic data reveals 57 cybersecurity-related M&A transactions in Europe in all of 2020 as opposed to 69 promotions in 2021.

Fintech firms were being also rapid to see the added benefits of an accelerated change to items like on the net banking and contactless payments. This trend has been growing steadily for yrs but attracted individual notice in 2021, spurred on by an explosion in exclusive intent acquisition business (SPAC) dealmaking. As a end result, fintech-centered Pegasus Europe and EFIC1 ended up two of Europe’s largest SPAC offers in 2021.

The evolution of small business styles built on steady recurring revenues (from Netflix to Spotify) and sticky buyer bases (from Intuit tax computer software to Shopify) only additional to the sector’s attraction for investors hunting to mitigate downside chance.

These robust underlying motorists noticed the STOXX Europe 600 Know-how Index climb 25% in the 2021 calendar yr, outperforming the STOXX Europe 600 by all-around 7%.

M&A exercise was similarly buoyant for the sector, with the 488 technology buyouts totalling €49.2 billion in 2021, accounting for almost a third of all European private equity (PE) promotions, according to Mergermarket details.

Across all technological know-how verticals, from fintech to cybersecurity, financial commitment ranges are moving steadily upwards—a development that displays no signals of slowing in 2022.

The potent effectiveness of the sector will make it very eye-catching for leveraged loan and substantial yield buyers. For know-how borrowers positioning their businesses for an acquisition, debt marketplaces have been a beneficial source of money to fund their progress just before M&A promotions clear.

Engineering and computer system-linked leveraged loan issuance in 2021 arrived in at €19.9 billion in Western and Southern Europe, in accordance to Debtwire Par. This was well forward of the 2020 whole-yr whole of €13.8 billion and almost double the €10.6 billion in issuance posted pre-pandemic in 2019.

Significant produce issuance for engineering and pc-similar credits was similarly robust. Debtwire Par facts exhibits that, in 2021, issuance in the region arrived at an all-time superior of €7.3 billion, exceeding the earlier annual file of €4 billion posted in 2018 and pretty much trebling the yearly issuance of €1.7 billion in 2020.


Technological know-how and laptop or computer-linked leveraged personal loan issuance in 2021 was 44% larger than the 2020 comprehensive-year total​​​​

Startups are stepping up in financial debt marketplaces

Loan companies are so enthusiastic about hitching their wagons to the know-how sector that they are discovering new channels and financial debt goods to improve their publicity to a broader pool of prospective debtors.

Personal debt provision for startups, for example—which is structured to offer speedy-growing firms that are not nonetheless dollars-movement-optimistic with accessibility to personal debt financing—hit record stages in 2021, as growing desire from tech startups and a increasing range of new entrants on the loan provider side saw issuance climb.

In accordance to figures from database management organization Dealroom, European startups lifted €8.3 billion in debt ahead of the conclusion of Q3 2021. This is a 41% uplift on the €5.9 billion of funding secured in the 2020 calendar 12 months and ahead of the past document yearly total of €8.1 billion secured in 2017.2

Undertaking and commence-up personal debt penetration in Europe has been a portion of that in the US historically, but there are now signals that European marketplaces are closing the gap. Borrowing by startups in Europe has much more than quadrupled since 2015, when the market was only worth €1.6 billion, and uptake is now increasing at double the fee of the US.3

Credit card debt financing offers get started-ups with strains of cash that do not dilute existing shareholders and enables providers to establish up their credit history heritage. This is vital for organizations planning to faucet into mainstream credit card debt marketplaces later on in their advancement. For loan companies, the products presents exposure to a quick-rising engineering credit early in the growth curve.

Business surveys exhibit that start-ups that use enterprise credit card debt goods are probably to do so once more.4 Supplied the stickiness of the products, as properly as new entrants entering the sector and driving down pricing, the development runway for get started-up personal debt in Europe appears to be like promising.

Leveraged loan and high yield bond issuance in technology & computer related sectors (quarterly)

Leveraged loan and substantial generate bond issuance in technologies & computer system associated sectors (quarterly)

Recurring profits structures come to the fore

For experienced engineering belongings that are way too large for start out-up financial debt financing but have however to reach ample scale to entry leveraged finance markets, the emergence of recurring earnings credit card debt provision has offered a useful option for boosting capital.

Recurring revenue financial debt unlocks additional funding by supplying credit history on the foundation of repeatable or subscription-dependent revenues. The product or service has been a very good match for technology companies that offer company-critical application and providers that clients depend on for the day-to-day functions of their companies. Loan providers have been in a position to give capital to these borrowers applying recurring revenue constructions, even although the providers are not nonetheless EBITDA-optimistic.

Phrases and pricing change from credit rating to credit rating, but recurring revenue financial loans will usually price tag larger than vanilla loans and have a runway of concerning two or 3 years. The expectation is for the credits to get to profitability and graduate to standard money stream lending alternatives in that time.

This funding technique has aided speedy-development late-phase, venture-backed technology organizations to bridge to an IPO or make profitability.

New lending streams like enterprise financial debt and recurring earnings loans have been perfectly obtained by European technologies startups. With loan providers keen to faucet into the sector’s potent development fundamentals, the yr forward is possible to split extra information as European engineering corporations of all sizes have accessibility to further swimming pools of money than at any time prior to.

1 “Europe raises document total of credit card debt funding”. Kai Nicol-Schwarz. Sifted. 7 September 2021.
2 Ibid
3 “Europe raises report volume of personal debt funding”. Op cit.
4 The Point out of European Tech. Report. 2020.

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