NEW YORK — January 4, 2017 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2016 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during 2016 and compares it with data covering 2014 and 2015.
Deal volume remained about constant on a yearly basis, with a total of 2,064 transactions in 2016. Overall value declined 28 percent, from $214.01 billion to $153.28 billion. However, if the $67.48 billion Dell-EMC acquisition in 2015 is excluded, value decreased five percent. Aggregate value in 2016 gained 23 percent relative to 2014.
In terms of valuations, the median revenue multiple year-over-year increased from 2.4x to 2.8x, while the median EBITDA multiple moved downward from 13.3x to 12.5x. Over the past three years, deals in the $10-$20 million range received a median enterprise value multiple of 2.2x revenue, compared to 2.5x revenue for those in the $20-$80 million range and 3.8x revenue for those in the $80-$160 million range and above.
Private equity backed volume in the Software Industry increased ten percent in 2016, from 335 to 369 acquisitions. Financial sponsors were responsible for just two of the industry’s top ten largest deals in 2016, as opposed to five of the top ten deals in 2015. The largest sponsored transaction in the U.S. during the year was Kohlberg Kravis Roberts & Co.’s (KKR) announced acquisition of Epicor Software Corporation, which provides enterprise software solutions to customers in the manufacturing, distribution, and retail sectors, for $3.3 billion. Regarding other notable sponsored deals above the $1 billion threshold, Vista Equity Partners was a high profile acquirer in 2016 with the acquisition of Marketo, an automated marketing software company, for $1.7 billion; and Cvent, a cloud-based enterprise event management business, for $1.41 billion.
M&A activity in the Infrastructure Software segment, after rising 20 percent in 2015, decreased eight percent in 2016. Notable Infrastructure transactions throughout the past twelve months included Symantec Corporation’s acquisitions of Blue Coat, which offers advanced web security solutions for global enterprises and governments, for $4.72 billion; and the announced acquisition of LifeLock, a provider of identity theft protection products and services for consumers, for $2.36 billion; Avast Software’s acquisition of AVG Technologies, a developer of business, mobile and PC device security software applications, for $1.3 billion; Intel’s sale of a majority stake in its cybersecurity business to TPG Capital for $1.1 billion; and Google’s acquisition of Apigee, an API management platform, for $625 million.
As for volume in the Consumer Software segment, deal activity improved four percent over the past year. The number of deals in the Business Software segment, which consists of software designed for general business practices and not specific industry markets, decreased three percent year-over-year. This followed a 15 percent rise during 2015. Notable Business segment transactions in 2016 included Oracle Corporation’s acquisition of NetSuite in the enterprise resource planning (ERP) sector for $6.62 billion; Roper Technologies’ acquisition of Deltek, a global provider of software and information solutions for project-based businesses, for $2.8 billion; and Thoma Bravo’s acquisition of Qlik Technologies, which offers business intelligence software and data visualization tools, for $2.61 billion.
Transaction activity in the “Niche Software” segment, which is targeted to specific vertical markets, saw a two percent uptick in 2016. The segment’s largest deal during the year was Siemens’ announced acquisition of Mentor Graphics Corporation, a design automation and industrial software business, for $4.5 billion. Meanwhile, Salesforce was responsible for two high profile segment deals in 2016 with the acquisition of Demandware, a provider of digital commerce solutions used by retailers, for $2.66 billion; and Krux Digital, a data management platform for marketers, for $700 million. One non-traditional buyer in the segment was The Hearst Corporation with the acquisition of CAMP Systems, a SaaS-based aviation management company, for $2 billion. Upon examination of specific subsectors, notable deals in the segment’s transportation vertical included Uber’s acquisition of Otto, which develops self-driving technology for trucks, for $680 million; and General Motors’ acquisition of Cruise Automation, which develops technology for autonomous vehicles, for $581 million.
“After getting off to a somewhat slow start, software M&A value began to gain momentum during the latter part of 2016,” said James Berkery, Managing Partner at Berkery Noyes. “Along these lines, seven of the industry’s top ten largest transactions occurred during the second half of the year. Major players are stepping up their acquisition activity of software and technology companies, motivated by the need to find new growth avenues and mindful of those nimble, entrepreneurial upstarts nibbling at the edges of their markets.” Berkery continued, “Emboldened by a stable economic climate, some previously sidelined acquirers are taking a good look at potential targets. And drawn by strong valuations, targets are showing increased receptivity to good offers, pointing to more opportunity for everyone in the year ahead.”
A copy of the SOFTWARE INDUSTRY M&A REPORT FOR FULL YEAR 2016 is available at the Berkery Noyes website.