NEW YORK — July 9, 2018 — Berkery Noyes, an independent mid-market investment bank, today released its half year 2018 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity during the first half of 2018 and compares it with the four previous six-month periods from 2016 to 2017.
M&A volume declined three percent on a half year basis. Aggregate transaction value improved 46 percent, from $57.88 billion to $84.43 billion. The median revenue multiple shifted from 2.7x in second half 2017 to 2.5x in first half 2018, while the median EBITDA multiple moved downward from 13.7x to 11.4x. Over the last two-and-a-half years, deals in the $10-$20 million range received a median enterprise value multiple of 2.0x revenue, compared to 2.7x revenue for those in the $20-$160 million range and 4.0x revenue for those in the $160 million range and above.
Transaction volume in the Infrastructure Software segment increased 11 percent in first half 2018. Splunk, a software platform that searches, analyzes, and visualizes machine-generated data, completed two of the segment’s top ten highest value deals in first half 2018 with the acquisition of Phantom, a Security Orchestration, Automation and Response (SOAR) company, for $350 million; and VictorOps, a DevOps incident management company, for $120 million. The segment’s largest sponsored deal in first half 2018 was KKR’s announced acquisition of BMC Software, which offers cloud and IT management solutions to enterprises, for $8.5 billion. Of note, BMC was acquired in 2013 by a private investor group led by Bain Capital and Golden Gate Capital for $6.69 billion.
As for the security sector, transactions by notable financial sponsors year-to-date included Thoma Bravo’s announced acquisition of a majority stake in LogRhythm; Francisco Partners’ announced acquisition of Bomgar; and The Riverside Company’s acquisition of Spirion.
“We expect that the investment climate for cybersecurity will likely experience the same gyrations as other technology sectors that have enjoyed intense investor interest,” said Martin Magida, Managing Director at Berkery Noyes. “However, one of the fundamental drivers of cybersecurity, namely that more of our daily activities as consumers and businesses are done online, will not abate.” Magida continued, “The digital equivalent of safeguarding and shredding written documents is a mind boggling task. Investors are signaling their appreciation for the magnitude of cybersecurity’s market potential by continuing to invest in the sector.”
In terms of software used within specific vertical industries or “Niche Software,” transaction volume decreased nine percent. Of note, five of the industry’s top ten highest value deals thus far in 2018 occurred in the segment, making it the best represented sector in the top ten list. Multi-billion dollar transactions in the Finance vertical included Ion 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 $2.02 billion (outbidding Temenos Group’s announced acquisition a few months prior); IHS Markit’s announced acquisition of Ipreo Holdings, which offers financial market information and software with a focus on alternative assets, for $1.86 billion; and Roper Technologies’ acquisition of PowerPlan, which gives clients an integrated suite of accounting tax, budgeting, and analytics software solutions, for $1.1 billion.
Regarding the retail sector, high profile transactions during the half year period included Adobe’s acquisition of Magento, an e-commerce platform and provider of cloud-based omnichannel solutions that integrate digital and physical shopping, for $1.68 billion; and GTCR and Sycamore Partners’ announced acquisition of CommerceHub, a technology company that helps retailers manage e-commerce inventory, for $1.06 billion.
After remaining nearly constant in second half 2017, deal volume in the Consumer Software segment declined 12 percent over the past three months. Notable Consumer transactions in first half 2018 included Square’s announced acquisition of Weebly, a website building service, for $365 million; and Zynga’s acquisition of Gram Games, a mobile game developer with studios in London and Istanbul, for $250 million.
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 2017. The largest Business Software deal in first half 2018 was Workday’s announced acquisition of Adaptive Insights, which offers cloud-based corporate performance management and business intelligence solutions, for $1.56 billion. Workday was also responsible for two other deals year-to-date with the acquisition of Rallyteam, a talent management software platform; and SkipFlag, an enterprise knowledge management company that uses machine intelligence to discover and organize workplace information.
“The workforce of today is constantly evolving and businesses need to adapt to not only survive, but also to maximize their most important assets,” stated Sameer Pal, Managing Director at Berkery Noyes. “Flexible work environments, better communication/collaboration tools, and shorter company tenure have become pervasive.” Pal continued, “The emergence of HR technology, big data analytics, and various other sub-industries all dedicated to improving the human capital area speak to HR’s growing impact.”
A copy of the SOFTWARE INDUSTRY M&A REPORT FOR HALF YEAR 2018 is available at the Berkery Noyes website.