NEW YORK — January 2, 2019 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2018 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during 2018 and compares it with data covering 2016 and 2017.
Total deal volume remained about constant on a yearly basis. Private equity backed volume improved nine percent whereas strategic volume declined four percent. Overall value rose 70 percent, from $134.63 billion to $229.54 billion. The industry’s largest transaction in 2018 was IBM’s announced acquisition of Red Hat, which provides open-source software products to the enterprise community, for $32.95 billion. The Red Hat acquisition was the second largest industry deal ever tracked by Berkery Noyes, following Dell’s acquisition of EMC Corporation for $67.48 billion in 2015.
In terms of valuations, the median revenue multiple year-over-year improved from 2.3x to 3.1x, while the median EBITDA multiple saw a slight uptick from 13.3x to 13.9x. Over the past three years, deals in the $10-$20 million range received a median enterprise value multiple of 2.0x revenue, compared to 3.1x revenue for those in the $20-$160 million range and 4.4x revenue for those in the $160 million range and above.
M&A activity in the Infrastructure Software segment stayed about the same over the past year. However, the segment was responsible for four of the overall industry’s top five highest value deals in 2018. Along these lines were IBM’s previously mentioned acquisition of Red Hat for $32.96 billion; Broadcom’s announced acquisition of CA Technologies, an IT management software and solutions company, for $18.38 billion; KKR’s announced acquisition of BMC Software, which also offers cloud and IT management solutions, for $8.5 billion; and Microsoft’s announced acquisition of GitHub, which provides code hosting services that allow developers to build software for open source projects, for $7.5 billion.
Upon examination of Infrastructure acquirers in 2018, private equity firm Thoma Bravo (either directly or through an affiliated business) was active with several acquisitions including:
- Imperva, a cybersecurity company that offers activity monitoring and risk management solutions for critical business data and applications, for $1.81 billion;
- Veracode, a provider of cloud-based application intelligence and security verification services, for $950 million;
- XaTester, which delivers automated unit testing to mainframe DevOps teams;
- Centrify Corporation, an identity and access management platform;
- Avecto, an endpoint privilege management and application control company;
- LogRhythm, which offers security analytics, log management, network and endpoint monitoring; and
- Lieberman Software, a cybersecurity business that isolates and contain data breaches.
The number of deals in the Business Software segment, which consists of software designed for general business practices and not specific industry markets, increased 17 percent. Notable Business segment transactions in 2018 included SAP SE’s announced acquisition of Qualtrics, a survey and research software company, for $8 billion; SAP America’s announced acquisition of CallidusCloud, which offers cloud-based sales, marketing, learning, and customer experience solutions, for $2.43 billion; Workday’s announced acquisition of Adaptive Insights, a cloud-based corporate performance management and business intelligence solutions company, for $1.55 billion; and LinkedIn’s acquisition of Glint, a real-time employee engagement platform, with a reported purchase price of over $400 million.
Transaction activity in the “Niche Software” segment, which is targeted to specific vertical markets, decreased six percent in 2018. This followed a 13 percent rise in the preceding year. Notable transactions in the segment’s Healthcare vertical during 2018 included Veritas Capital and Evergreen Coast Capital’s announced acquisition of athenahealth, a provider of network-enabled services for hospital and ambulatory customers, for $5.6 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; Veritas Capital Partners’ announced acquisition of the Value-Based Care Division from GE Healthcare for $1.05 billion; and ResMed’s acquisition of MatrixCare, a post-acute care software company, for $750 million.
As for other areas of the segment, 3D design and engineering software company Autodesk was a notable acquirer with the acquisitions of PlanGrid, which offers real-time collaboration for contractors and real estate owners throughout the construction project lifestyle, for $875 million; and BuildingConnected, a platform that helps real estate and construction firms find qualified workers, for $275 million.
“Acquisition activity across the software marketplace is rooted in sound strategy as major technology companies seek greater mass and diversity, formerly emerging technologies have matured, and financial buyers look to invest in quality assets,” said James Berkery, Managing Partner at Berkery Noyes.
A copy of the SOFTWARE INDUSTRY M&A REPORT FOR FULL YEAR 2018 is available at the Berkery Noyes website.