Berkery Noyes’ Software report for first half 2017 showed that M&A volume increased 12 percent on a half year basis. The number of acquisitions completed by strategic acquirers improved eight percent whereas private equity backed deal flow rose 25 percent. Aggregate transaction value declined 18 percent, from $93.02 billion to $76.63 billion. This followed a 41 percent gain in second half 2016.
The median revenue multiple moved slightly from 2.5x in second half 2016 to 2.3x in first half 2017, while the median EBITDA multiple stayed the same at 13.3x. Over the last two-and-a-half years, deals in the $10-$20 million range received a median enterprise value multiple of 2.2x revenue, compared to 2.6x revenue for those in the $20-$80 million range and 3.9x revenue for those in the $80-$160 million range and above.
Transaction volume in the Infrastructure Software segment increased 21 percent in first half 2017, making it the segment with the largest half year rise in volume. M&A activity in the segment remained almost constant throughout the four preceding half year periods. The largest Infrastructure deal year-to-date was Cisco Systems’ acquisition of AppDynamics, an application performance management and IT analytics company, for $3.9 billion.
Cisco completed several other high profile Infrastructure transactions during first half 2017 with the announced acquisition of Viptela, a software-defined wide area network (SD-WAN) company, for $610 million; and MindMeld, an artificial intelligence (AI) startup that helps business build conversational interfaces, for $125 million.
Additional notable Infrastructure deals thus far in 2017 included HGGC’s announced acquisition of IDERA, a provider of database lifecycle management solutions and application development tools, for $1.13 billion; HP Enterprise’s announced acquisition of SimpliVity, a data management platform focused on hyper-converged infrastructure technology, for $650 million; and CA Technologies’ acquisition of Veracode, a provider of cloud-based application intelligence and security verification services, for $614 million.
In terms of software used within specific vertical industries or “Niche Software,” transaction volume experienced a 15 percent improvement. After remaining nearly constant in second half 2016, deal volume in the Consumer Software segment declined 14 percent. M&A activity in the Business Software segment, which consists of software designed for general business practices and not specific industry markets, saw a 13 percent rise relative to second half 2016.
“There are many motivated acquirers competing for good properties in the software space,” added James Berkery, Managing Partner at Berkery Noyes. “Buyers are usually attracted to companies that can demonstrate a high growth rate, strong margins, good free cash flow, and a diversified customer base, among other factors. Although careful not to overpay, they are sometimes willing to stretch to a premium price when they have a valid, compelling and strategic reason to do so.”