NEW YORK — October 2, 2014 — Berkery Noyes, an independent mid-market investment bank, today released its third quarter 2014 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity during the three-month period and compares it with data for the six previous quarters.

According to the Berkery Noyes’ latest research, volume declined 12 percent over the prior quarter, from 496 to 437 deals. This followed a 16 percent increase from first to second quarter 2014, which was the industry’s peak for volume throughout the past seven quarters. The number of deals year-to-date also rose 15 percent compared to the corresponding timeframe in 2013. Aggregate transaction value nearly doubled relative to the previous quarter, from $19.7 billion to $38.8 billion. Of note, six of the highest value software transactions year-to-date occurred in September.

Deal flow in the Consumer Software segment decreased nine percent over the past three months. This was the same amount of activity in the segment as in first quarter 2014. An emerging trend generating interest from acquirers involves the Internet of Things. One such example in third quarter 2014 was Samsung’s acquisition of SmartThings for a reported $200 million. SmartThings’ open platform enables home control and automation devices to be connected in the cloud through a single mobile application. Samsung has been placing more of an emphasis on its mobile offerings as of late. In addition to SmartThings, this notion was demonstrated in the Business Software segment through Samsung’s acquisition of PrinterOn, an enterprise mobile printing platform, during third quarter 2014.

Meanwhile, Google completed several Consumer Software transactions in the quarter that pertain to artificial intelligence (AI) technology. For instance, Google acquired JetPac, a mobile application that creates city guides based on public Instagram photographs, as it potentially looks to incorporate AI technology into its image search and map services. Google also acquired Emu, a mobile messaging application that relies on AI for its virtual assistant platform. As for high profile AI transactions completed earlier in the year, Google acquired DeepMind for $401 million in first quarter 2014.

In terms of “Niche Software,” which is targeted to specific vertical industries, volume fell 15 percent on a quarterly basis, returning to its first quarter 2014 level. The segment’s largest transaction in third quarter 2014 was Cognizant Technology Solutions’ acquisition of TriZetto in the Healthcare IT market. TriZetto, an information technology and service solutions company for healthcare payers and providers, was acquired for $2.7 billion.

The Business Software segment, which consists of software designed for general business practices and not specific vertical industries, experienced a 17 percent quarter-to-quarter decline in volume. This came in the aftermath of a 22 percent increase between first and second quarter 2014. The industry’s largest financially sponsored deal in third quarter 2014 was Vista Equity Partners’ acquisition of TIBCO Software for $4.0 billion in the segment.

Deal volume in the Infrastructure Software segment improved nine percent, making it the segment with the largest rise in deal activity. One associated trend has been strong demand in the identity and access management space. Examples in third quarter 2014 included Gemalto’s acquisition of SafeNet for $890 million as well as IBM’s acquisitions of Lighthouse Security Group and CrossIdeas.

Regarding other notable acquirers in the segment, HP made a move to better compete against Amazon in the cloud market with the acquisition of Eucalyptus Systems, a provider of open source software for building private and hybrid enterprise clouds. Eucalyptus’ CEO Marten Mickos, who also sold open source company MySQL to Sun Microsystems in 2008 for $1 billion, will manage HP’s cloud business following the transaction.

In addition, acquirers are showing an interest in backup software and data recovery as it relates to the cloud. Along these lines, Microsoft acquired InMage and EMC acquired TwinStrata during third quarter 2014.

“In the highly fragmented software market, which is populated by many niche focused companies that provide specialized solutions, the need to build scale will drive consolidation,” said James Berkery, Chief Investment Officer at Berkery Noyes. “There are several reasons why scale matters. With little or no marginal expense for each incremental unit sold, software companies need scale to be profitable. Scale also equals brand strength and gives customers confidence that the company will endure and thrive.”

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