NEW YORK — October 1, 2012 — Berkery Noyes, an independent mid-market investment bank, today released its third quarter 2012 mergers and acquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry across the three-month period and compares it with data for the six previous quarters.
Berkery Noyes’ research showed total transaction volume decreased 11 percent over the prior quarter, from 411 to 364. Aggregate transaction value declined 35 percent, totaling $13.9 billion. The median revenue multiple improved from 2.1x to 2.4x, while the median EBITDA multiple fell from 11.7x to 9.9x. It should be noted that there was a similar drop in transaction volume and value for the corresponding timeframe in 2011.
Deal activity in the Infrastructure Software segment decreased 20 percent on a quarterly basis. In terms of subsector areas of growth within the segment, M&A pertaining to development application software tools increased 36 percent relative to the last quarter. This is occurring, in part, due to the continued adoption of both agile software development and DevOps. There were also several notable virtualization acquisitions in third quarter 2012, a subsector that nearly doubled since first quarter 2012. For instance, EMC Corporation, through its subsidiary VMware, announced its acquisition of Nicira for $1.1 billion and Cisco Systems announced its acquisition of security startup Virtuata in the quarter.
“Cloud computing as an interruptive technology has been developing these past five years due to the increase of bandwidth, virtualization technology, and other scaling technologies,” stated James Berkery, Chief Information Officer at Berkery Noyes. One particular trend right now is that cloud providers are looking to operate across public, private, and hybrid service platforms. VMware’s announced acquisition of DynamicOps in the third quarter was just one example reinforcing this notion. Furthermore, several transactions earlier in the year highlight how application modernization software and services are a vital part of making the transition from legacy architectures to the cloud.
The Consumer Software segment, after remaining nearly constant from first to second quarter 2012, underwent a 24 percent decrease over second quarter 2012. Regarding notable segment transactions, Google acquired Nik Software, one of Instagram’s competitors, for an undisclosed amount. Nik Software is the creator of Snapseed, a photo editing application for both mobile and desktop users. In addition, 3D design software company Autodesk announced its acquisition of Socialcam, a social video application, for $60 million. Transaction volume was less negatively impacted within the Business Software segment, which declined nine percent in third quarter 2012. The largest Business Software transaction in third quarter 2012 was Thoma Bravo’s announced acquisition of Deltek for $1.0 billion.
In the Niche Software segment, transaction volume decreased six percent relative to second quarter 2012. However, the segment previously experienced a 23 percent gain from the first to second quarter. One subsector impacting Niche Software M&A is the changing nature of television advertising campaigns, whereby there is a greater focus on platforms that accurately target consumers and measure end-to-end effectiveness. This was underscored by several Software-as-a-Service (SaaS) ad tracking deals in third quarter 2012, such as The Nielsen Company’s acquisition of Vizu and TiVo’s announced acquisition of TRA for $20 million.
A copy of the THIRD QUARTER 2012 M&A REPORT FOR THE SOFTWARE INDUSTRY is available at the Berkery Noyes website.