NEW YORK — October 25, 2016 — Berkery Noyes, an independent mid-market investment bank, today released its third quarter 2016 mergers and acquisitions trend report for Private Equity in the Information Industry.
The report analyzes M&A activity during the three-month period and compares it with data for the six previous quarters. It features transactions by financially sponsored acquirers within the Information Industry, including purchases made by subsidiaries or platforms of private equity firms.
Berkery Noyes’ research showed that private equity volume in the Information Industry year-to-date experienced a slight uptick compared to the corresponding timeframe in 2015, from 472 to 477 deals. Going back further, the number of transactions involving an online component has continued to rise over the years, from 55 percent in 2013 to 62 percent in 2016 year-to-date. Meanwhile, secondary buyout volume year-to-date rose by ten percent compared to the same period in 2015, from 59 to 65 acquisitions.
Financially sponsored deal value year-over-year decreased ten percent, from $50 billion to $45.1 billion. In terms of valuations, the median revenue multiple improved from 2.1x to 2.4x whereas the median EBITDA multiple remained nearly constant at 11.0x.
Of note, seven of the industry’s top ten highest value deals year-to-date occurred in the third quarter, which included four of the five largest transactions. These seven acquisitions combined represented almost one-half of the industry’s aggregate value thus far in 2016. The Information Industry’s largest sponsored transaction in the quarter and year-to-date was a Chinese consortium’s announced acquisition of Playtika, a social and mobile games company based in Israel, for $4.4 billion. Among the consortium’s acquirers was Yunfeng Capital, the private equity firm founded by Alibaba Group Chairman Jack Ma.
Private equity firms in the industry’s horizontal Software market accounted for 18 percent of deal volume year-to-date, which was almost constant compared to the same period in 2015. Sponsored deal value represented 34 percent of the horizontal’s total value so far this year, as opposed to 44 percent through the first three quarters of 2015.
In terms of “Niche Software,” which is targeted to specific vertical industries, high value deals during the quarter included Kohlberg Kravis Roberts & Co.’s (KKR) acquisition of Epicor Software Corporation, which provides enterprise software solutions to customers in the manufacturing, distribution, and retail sectors, for $3.3 billion; Harvest Partners and OMERS Private Equity’s acquisition of Epiq Systems, a provider of integrated technology solutions for the legal profession, including electronic discovery, bankruptcy, and class action and mass tort administration, for $1 billion; and Thoma Bravo’s acquisition of Imprivata, a healthcare IT security company, for $544 million.
As for the Infrastructure segment, the largest sponsored deal in third quarter 2016 was Intel’s announced sale of a majority stake in its cybersecurity business to TPG Capital for $1.1 billion. McAfee will become a jointly-owned independent company with Intel retaining a 49 percent ownership stake.
Regarding specific markets in the Information Industry, two of the overall Healthcare vertical’s top three largest deals in the third quarter were backed by financial sponsors. This was led by EQT’s announced acquisition of Press Ganey Associates, a healthcare performance improvement company that offers patient experience measurement, performance analytics and strategic advisory solutions, for $2.4 billion.
“The dry powder available for investment is contributing to a healthy level of competition amongst private equity firms,” said James Berkery, Managing Partner at Berkery Noyes. “With a need to find attractive opportunities in this competitive marketplace, where sellers are receiving robust valuations, many financial sponsors are following the buy and build approach, acquiring companies that complement their existing platforms. These bolt-on acquisitions can accelerate growth and provide flexibility, whether it’s strengthening certain core competencies or expanding into adjacent markets.”
A copy of the PRIVATE EQUITY IN THE INFORMATION INDUSTRY M&A REPORT FOR THIRD QUARTER 2016 is available at the Berkery Noyes website.