NEW YORK — January 3, 2018 — Berkery Noyes, an independent mid-market investment bank, today released its full year 2017 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during 2017 and compares it with data covering 2015 and 2016.
Total deal volume increased four percent on a yearly basis, with a total of 2,191 transactions in 2017. Private equity backed volume improved 22 percent, from 399 to 487 acquisitions, whereas strategic volume remained almost constant. Overall value declined 16 percent, from $159.32 billion to $133.64 billion. Financial sponsors were responsible for half of the industry’s top ten largest deals in 2017.
In terms of valuations, the median revenue multiple year-over-year decreased from 2.7x to 2.3x, while the median EBITDA multiple saw a slight uptick from 12.7x to 13.3x. Over the past three years, deals in the $10-$20 million range received a median enterprise value multiple of 2.1x revenue, compared to 2.8x revenue for those in the $20-$80 million range and 3.8x revenue for those in the $80 million and above range.
M&A activity in the Infrastructure Software segment increased 17 percent on a yearly basis. Notable Infrastructure transactions during 2017 included Thales SA’s announced merger with Gemalto, a digital security company that offers mobile connectivity, payment technology, and data protection solutions, for $6.51 billion; Cisco Systems’ acquisitions of AppDynamics, an application performance management and IT analytics company, for $3.9 billion; and Broadsoft, which offers software and services that enable telecommunications service providers to deliver hosted cloud-based unified communications to enterprise customers, for $1.87 billion; and Keysight Technologies’ acquisition of Ixia, which provides IP network validation and network visibility solutions, for $1.56 billion.
Upon examination of high profile Infrastructure segment acquirers in 2017, Microsoft was active with several acquisitions including:
- Hexadite, a cyber-security company that uses artificial intelligence software to investigate online threats and provide automated responses, for a reported $100 million;
- Open Build Service, an integrated development environment that will become an extension of Visual Studio; Intentional Software, which develops tools that simplify the programming and automation of tasks in a collaborative work environment;
- Deis, an open-source platform as a service (PaaS) that enables users to deploy and manage applications on their own servers;
- Agile Extensions’ Wiki extension for Visual Studio Team Services;
- Simplygon, a developer of automatic 3D data-optimization solutions; and
- Maluuba, a deep learning startup; and Cycle Computing, a software developer that creates solutions for data management and cloud orchestration.
“Acquirers are demanding a broad array of security capabilities that span the gamut of internal and external network and application users,” said James Berkery, Managing Partner at Berkery Noyes. “This includes vulnerability and intrusion detection and prevention, identity management, rogue device identification and other areas.” Berkery continued, “There is a need in the marketplace for solutions that support configuration, provisioning, firmware updates, diagnostics and security, particularly as the range of device types expands.”
Martin Magida, Managing Director at Berkery Noyes, added “Innovation is also occurring in AI in the areas of anti-fraud and identity management, mobile security, predictive intelligence behavioral analytics and anomaly detection, automated security solutions, cyber-risk management, app security, IoT security, and deception security.”
As for volume in the Consumer Software segment, deal activity decreased 12 percent year-over-year. This followed a five percent rise during 2016. Regarding value, this was the first time in the past five years that no Consumer transactions reached the top ten list of Software acquisitions.
After remaining almost constant in 2016, the number of deals in the Business Software segment, which consists of software designed for general business practices and not specific industry markets, fell ten percent. Notable Business segment transactions in 2017 included Blackstone Group’s announced acquisition of Aon’s technology-enabled and human resources platform for $4.3 billion; Thoma Bravo’s acquisition of Lexmark International’s enterprise software business, which is comprised of Kofax, ReadSoft and Perceptive, for $1.35 billion; and The Sage Group’s announced acquisition of Intacct Corporation, which provides cloud financial management solutions, for $850 million.
Transaction activity in the “Niche Software” segment, which is targeted to specific vertical markets, experienced a 12 percent increase in 2017. Half of the overall industry’s top ten highest value deals during the year occurred in the segment. Notable transactions in the segment’s Healthcare vertical included McKesson Corporation’s acquisition of CoverMyMeds, which offers electronic prior authorization solutions to pharmacies, providers, payers and pharmaceutical manufacturers, for $1.4 billion (which includes a $300 million earnout); Fidelity National Financial’s announced acquisition of T System, a provider of clinical documentation as well as coding software and outsourced solutions, for $200 million; and Allscripts’ acquisition of McKesson’s hospital and health system IT business for $185 million.
A copy of the SOFTWARE INDUSTRY M&A REPORT FOR FULL YEAR 2017 is available at the Berkery Noyes website.