2018-04-11 Berkery Noyes Releases Software Industry M&A Report For First Quarter 2018

Wednesday, April 11, 2018

NEW YORK — April 11, 2018 — Berkery Noyes, an independent mid-market investment bank, today released its Q1 2018 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during Q1 2018 and compares it with the past four quarters.

Transaction volume declined eight percent over the past three months, with a total of 498 acquisitions in Q1 2018. Overall value gained 15 percent, from $31.7 billion to $36.6 billion. The number of deals throughout the past five quarters reached its peak in Q2 2017, whereas value reached its zenith in Q1 2017.

Strategic acquirers completed nine of the top ten highest value software deals in Q1 2018. The industry’s largest transaction year-to-date was Salesforce’s announced acquisition of MuleSoft, which provides a platform for building application networks that connect enterprise apps, data, and devices, for $6.5 billion. This was the largest acquisition ever completed by Salesforce. In addition to Mulesoft, Salesforce acquired CloudCraze, a B2B e-commerce platform, during Q1 2018.

Deal volume in the “Niche Software” segment, which is targeted to specific vertical markets, decreased 17 percent in Q1 2018. This followed a nine percent gain in Q4 2017. In terms of value, the Niche segment accounted for seven of the overall industry’s top ten highest value deals year-to-date. These seven transactions, with a combined value of $12.6 billion, accounted for about one-third of the aggregate industry’s value year-to-date. Along these lines were:

  • SS&C Technologies’ announced acquisition of DST Systems, a provider of specialized technology, strategic advisory, and business operations outsourcing to the financial and healthcare industries, for $5.6 billion;
  • Roche’s announced acquisition of Flatiron Health, an oncology-specific healthcare technology and services company, for $1.9 billion;
  • Temenos Group’s announced acquisition of Fidessa, which provides software and services for investment management systems, analytics, and market data that serves both the buy-side and sell-side, for $1.9 billion;
  • Inovalon’s announced acquisition of Ability Network, a developer of Software-as-a-Service (SaaS) tools designed to simplify administrative and clinical complexities in the healthcare sector, for $1.2 billion;
  • GTCR and Sycamore Partners’ announced acquisition of CommerceHub, a technology company that helps retailers manage e-commerce inventory, for $994 million;
  • S&P Global’s announced acquisition of Kensho, which deploys scalable machine learning and analytics systems across global banks, investment institutions, and others, for $550 million; and
  • Trimble’s acquisition of e-Builder, SaaS-based construction program management solution for capital program owners and program management firms, for $500 million.

M&A volume in the Infrastructure segment increased 43 percent in Q1 2018, making it the sector with the largest rise in M&A activity over the past three months. Notable Infrastructure deals in Q1 2018 included Salesforce’s aforementioned acquisition of MuleSoft for $6.5 billion; LexisNexis Risk Solutions’ announced acquisition of ThreatMetrix, which provides cloud-based fraud prevention solutions, for $804 million; Splunk’s announced acquisition of Phantom, a security automation and orchestration platform, for $350 million; Palo Alto Networks’ announced acquisition of Evident.io, which offers a software platform for enterprise security management, for $300 million; and Red Hat’s announced acquisition of CoreOS, a Kubernetes (open-source system for containerized applications) company, for $250 million.

In the Consumer segment, volume decreased 14 percent on a quarter-to-quarter basis. As for notable, non-traditional acquirers during Q1 2018, cosmetics manufacturer L’Oréal acquired ModiFace, a beauty tech company focused on augmented reality and artificial intelligence. Fashion retailer Nordstrom acquired BevyUp, which offers a mobile clienteling app that is used by sales associates to provide customers with a personalized, omnichannel experience; and MessageYes, a platform for e-commerce through mobile messaging.

The Business segment, which consists of software designed for general business practices and not specific industry markets, saw volume remain about constant on a quarterly basis. The segment’s highest value deal in Q1 2018 was SAP America’s announced acquisition of CallidusCloud, which offers cloud-based sales, marketing, learning, and customer experience solutions, for $2.4 billion.

Regarding the segment’s human capital management (HCM) sector, notable first quarter deals included Bullhorn’s acquisitions of recruitment software companies Jobscience and Talent Rover (note that Bullhorn was acquired by Insight Venture Partners in Q4 2017); and Comvest Partners’ acquisition of Engage2Excel, a provider of employee recognition, sales incentives, talent acquisition and consumer loyalty solutions and services.

“Human capital has seen a massive amount of activity from private equity groups,” said Sameer Pal, Managing Director at Berkery Noyes. “HCM is a huge market opportunity that PE is trying to capture/transform by investing in a broad swath of businesses and technology. This also causes ripple effects since PE groups thrive on growth, so add-on acquisitions remain a key part of their strategy.” Pal continued, “Therefore, PE-backed companies represent strategic players who potentially focus more on acquisitions than they might have previously. It also means they have assets they are potentially selling.”

A copy of the SOFTWARE INDUSTRY M&A REPORT FOR FIRST QUARTER 2018 is available at the Berkery Noyes website.