NEW YORK — October 2, 2017 — Berkery Noyes, an independent mid-market investment bank, today released its third quarter 2017 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 Berkery Noyes’ latest research, volume decreased nine percent on a quarterly basis. However, the number of transactions year-to-date stayed about constant compared to the corresponding timeframe in 2016. Aggregate value rose 14 percent relative to the previous quarter, from $20.7 billion to $23.7 billion. The median revenue multiple declined from 2.7x in 2016 to 2.2x through the first three quarters of 2017, while the median EBITDA multiple remained nearly constant at 12.9x.
Five of the top ten largest deals thus far in 2017 were backed by financial sponsors, two of which were completed in the third quarter: Partners Group Holding’s announced acquisition of Civica, which offers specialized software systems and business process services to the public sector and commercial organizations, for $1.4 billion; and Centerbridge Capital Partners’ announced acquisition of Syncsort, which provides enterprise software for companies to collect, integrate, sort and distribute data, for $1.3 billion. Private equity firms represented slightly less than one-quarter of volume but almost one-half of value throughout the first three quarters of 2017.
In terms of “Niche Software,” which is targeted to specific vertical industries, volume fell 12 percent over the prior quarter, returning to its second quarter level. M&A activity in the segment through the first three quarters of 2017 increased four percent on a year-over-year basis. Notable deals in the segment’s Finance vertical during the third quarter included Nasdaq’s announced acquisition of eVestment Alliance, a content and analytics provider used by asset managers, investment consultants and asset owners to help facilitate institutional investment decisions, for $705 million; Verisk Analytics’ announced acquisition of Sequel Business Solutions, an insurance and reinsurance software specialist, for $321 million; and Envestnet’s announced acquisition of FolioDynamix, a provider of integrated wealth management technology solutions, for $195 million.
As for notable Niche segment deals during the past quarter focused on the retail sector, Pitney Bowes announced its acquisition of Newgistics, a provider of e-commerce services for retailers and brands, for $475 million; Aptos announced its acquisition of TXT Retail, which offers end-to-end merchandise lifecycle management solutions for the apparel, luxury, specialty and general retail sectors, for $99 million; Valassis Communications announced its acquisition of MaxPoint Interactive, a marketing technology company that optimizes brand and retail performance with hyperlocal intelligence, for $95 million (Harland Clarke Holdings, the parent company of Valassis Communications, also acquired online coupon site RetailMeNot for $620 million earlier in the year); and Target announced its acquisition of Grand Junction, a technology transportation company whose software helps retailers and distributors manage local delivery throughout North America.
Regarding other markets covered in the report, deal flow in the Consumer Software segment was flat for the fourth consecutive quarter. The Business Software segment, which consists of software designed for general business practices and not specific vertical industries, saw volume decrease 21 percent from second to third quarter 2017. Notable third quarter Business segment deals included The Sage Group’s announced acquisition of Intacct Corporation, which provides cloud financial management solutions, for $850 million; Open Text Corporation’s acquisition of Guidance Software, a forensic security and eDiscovery vendor, for $245 million; and Ellie Mae’s announced acquisition of Velocify, a sales acceleration platform, for $128 million.
Transaction volume in the Infrastructure segment increased 16 percent in third quarter 2017. Deal activity in the segment year-to-date also rose 28 percent compared to the first three quarters of 2016. Upon examination of the segment’s cybersecurity sector, the largest related deal in third quarter 2017 was DigiCert’s announced acquisition of Symantec’s website security and related public key infrastructure (PKI) solutions for $950 million. Symantec made several acquisitions of its own during the quarter with Skycure, a mobile security company; and Fireglass, which helps eliminate malware and phishing threats in real-time. This follows an active 2016 for Symantec, when the company acquired Blue Coat, which offers advanced web security solutions for global enterprises and governments, for $4.7 billion; and LifeLock, a provider of identity theft protection products and services for consumers, for $2.4 billion. Symantec also sold Veritas Technologies Corporation, a storage and server management software solutions business, to The Carlyle Group for $8 billion in 2016.
“Ensuring that an organization’s intellectual assets and property, especially customer information, are secure is garnering more attention due to phishing exploits and accidental dispensing of information,” said Martin Magida, Managing Director at Berkery Noyes. “For security professionals, the establishment of an adaptable IT structure that supports advanced security measures should be thought of as an investment instead of just a compliance-related expense.” Magida continued, “Vendors are garnering the attention of major security platform providers and financial investors as they continue to consolidate capabilities to add value. We see few industries as dynamic and evolving as cybersecurity as it responds to a continuous wave of threats. Consequently, we anticipate continued strong investment and M&A deal volume for the foreseeable future.”
A copy of the SOFTWARE INDUSTRY M&A REPORT FOR THIRD QUARTER 2017 is available at the Berkery Noyes website.