NEW YORK — April 7, 2014 — Berkery Noyes, an independent mid-market investment bank, today released its Q1 2014 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during Q1 2014 and compares it with the past four quarters.

Transaction volume declined four percent on a quarter-to-quarter basis. However, this represented a 14 percent increase compared to Q1 2013. Overall deal value gained 72 percent in Q1 2014 over Q4 2013, from $22.6 billion to $38.8 billion. This increase in aggregate value was attributable in large part to Facebook’s acquisition Whatsapp for $16 billion, a cross-platform mobile messaging application. Even if the Whatsapp transaction is excluded, total value still would have more than tripled relative to Q1 2013.

Facebook also completed the industry’s second largest deal in Q1 2014 with the acquisition of Oculus, a virtual reality technology company, for $1.9 billion. Although Oculus provides headset hardware for gaming, Facebook has indicated that this transaction was based on software, services, and the desire to leverage Oculus’ technology beyond gaming, which is the reason for its inclusion in the report.

One notable occurrence was the rise in overall value compared to the same time period last year. There were eight software transactions above the $500 million threshold in Q1 2014, compared to one such deal in Q1 2013. The top ten largest transactions accounted for 61 percent of the industry’s aggregate value in Q1 2014, as opposed to 55 percent in Q4 2013 and 38 percent in Q1 2013.

The “Niche Software” segment, which consists of software that is targeted to specific vertical markets, underwent a ten percent volume increase in Q1 2014. In terms of growth areas within the segment, deal volume pertaining to the Healthcare IT market increased 31 percent.

As for other sectors covered in the report, Consumer Software volume remained about constant. Business Software, after rising 17 percent in Q4 2013, saw a 13 percent decline in transaction volume throughout the past three months. One of the largest deals in the Business Software segment in Q1 2014 was Verint Systems’ acquisition of cloud-based customer service company KANA Software for $514 million. A similar transaction during the quarter was Microsoft’s acquisition of Parature, one of KANA Software’s competitors, for $100 million. With this deal, Microsoft is looking to bolster its customer relationship management (CRM) platform to better compete with Oracle and Salesforce.

M&A activity in the Business Software segment’s human capital management (HCM) subsector increased 33 percent, from 15 to 20 deals. The subsector’s highest value deal in Q1 2014 was Infor’s acquisition of PeopleAnswers for $200 million. This transaction, among others, shows that acquirers are interested in leveraging big data to predict employee performance. Infor, an enterprise resource planning (ERP) software provider that is backed by Golden Gate Capital, also acquired CERTPOINT Systems in Q1 2013 to help build its HCM suite.

Deal volume in the Infrastructure Software segment decreased 32 percent in Q1 2014. This followed a 13 percent increase between Q3 2013 and Q4 2013. Continuing a trend from 2013, cyber-security transactions continued to have an impact on the segment’s value. Along these lines, the segment’s highest value deal in Q1 2014 was FireEye’s acquisition of malware detection company Mandiant Corporation for $826 million. M&A activity in the cyber-security subsector is being driven in part by several factors such as the need to prevent breaches at major retailers, ensure digital identity as a means of protecting sensitive information, and identify threats both before they occur as well as in real-time.

Other transactions in the Infrastructure Software segment completed by notable acquirers in Q1 2014 included Citrix’s acquisition of Framehawk, a software development company that focuses on virtualized desktop solutions and mobilizing enterprise applications; IBM’s acquisition of Cloudant, a database-as-a-service (DBaaS) provider; and Oracle’s acquisition of Corente, which offers software-defined networking (SDN) technology.

“Many acquirers are looking for the ability to manage enterprise platforms across public, private, and hybrid cloud environments,” said James Berkery, Chief Information Officer at Berkery Noyes. “Cloud brokers that serve as an intermediary between cloud providers and enterprises are also starting to play a more important role in the marketplace. There could be an opportunity for eventual consolidation, as new entrants focused on customization and configuration draw attention from some of the large cloud computing and information technology companies.”

A copy of the SOFTWARE INDUSTRY M&A REPORT FOR FIRST QUARTER 2014 is available at the Berkery Noyes website.