January 6, 2017 VALUATIONS IN THE SOFTWARE INDUSTRY SHOW ONGOING SIGNS OF STRENGTH

According to Berkery Noyes Software report for full year 2016, deal volume remained about constant on a yearly basis, with a total of 2,064 transactions in 2016. Overall value declined 28 percent, from $214.01 billion to $153.28 billion. However, if the $67.48 billion Dell-EMC acquisition in 2015 is excluded, value decreased five percent. Aggregate value in 2016 gained 23 percent relative to 2014.

In terms of valuations, the median revenue multiple year-over-year increased from 2.4x to 2.8x, while the median EBITDA multiple moved downward from 13.3x to 12.5x. Over the past three years, deals in the $10-$20 million range received a median enterprise value multiple of 2.2x revenue, compared to 2.5x revenue for those in the $20-$80 million range and 3.8x revenue for those in the $80-$160 million range and above.

Private equity backed volume in the Software Industry increased ten percent in 2016, from 335 to 369 acquisitions. Financial sponsors were responsible for just two of the industry’s top ten largest deals in 2016, as opposed to five of the top ten deals in 2015.

M&A activity in the Infrastructure Software segment, after rising 20 percent in 2015, decreased eight percent in 2016. Symantec Corporation was a high profile acquirer in the segment during the past year with the acquisitions of Blue Coat, which offers advanced web security solutions for global enterprises and governments, for $4.72 billion; and the announced acquisition of LifeLock, a provider of identity theft protection products and services for consumers, for $2.36 billion.

Other notable Infrastructure transactions throughout the past twelve months included Avast Software’s acquisition of AVG Technologies, a developer of business, mobile and PC device security software applications, for $1.3 billion; Intel’s sale of a majority stake in its cyber-security business to TPG Capital for $1.1 billion; and Google’s acquisition of Apigee, an API management platform, for $625 million.

“After getting off to a somewhat slow start, software M&A value began to gain momentum during the latter part of 2016,” said James Berkery, Managing Partner at Berkery Noyes. “Along these lines, seven of the industry’s top ten largest transactions occurred during the second half of the year. Major players are stepping up their acquisition activity of software and technology companies, motivated by the need to find new growth avenues and mindful of those nimble, entrepreneurial upstarts nibbling at the edges of their markets.” Berkery continued, “Emboldened by a stable economic climate, some previously sidelined acquirers are taking a good look at potential targets. And drawn by strong valuations, targets are showing increased receptivity to good offers, pointing to more opportunity for everyone in the year ahead.”