Solganick & Co. has issued its latest software M&A update for Q4 2017 and 2018 outlook. The following summarizes the report, which can be downloaded here: Solganick Software M&A Update Q4 2017 and Outlook 2018

In 2017, the sector median revenue multiple was 2.3x, and the median EBITDA multiple was 13.3x.

In Q4 2017, global strategic software M&A registered 402 acquisitions, remaining in-line with the prior quarter and representing a 15% increase over Q4 2016.

Google was the most active strategic acquirer in 2017 with 13 completed transactions.

Cisco Systems was responsible for two of the top ten largest acquisitions in this industry sector: AppDynamics for $3.9bn and Broadsoft for $1.87bn.

For the software market, the total M&A transaction volume in 2017 increased by 4% over 2016, from 2,100 to 2,191. However, total transaction value in 2017 declined by 16% over 2016. The transaction activity in the sector started strong in Q1 2017 with many deals valued at over a billion dollars. Deal values and volume slowed down during Q2 and Q3 but seemed to pick back up in Q4.

While the strategic deal volume remained constant, the private equity backed deal volume increased by 22% over the year. Yet, the majority of transactions remained strategic (78% of the total volume in 2017), which has been the trend for the past three years. The “niche software” market had significantly larger transaction volume than the other segments: business software, infrastructure software, and consumer software. (BN Software Report)

Both deal volume and value decreased in Q4 2017 over Q4 2016 by 21% and 42% respectively. The scenario of multi-billion dollar deals that happened in 2016 were not matched in 2017.

Notable deals in the space include Cisco’s acquisition of BroadSoft for $1.7 billion, Elliot Management’s acquisition of Gigamon for $1.6 billion, and Thoma Bravo’s acquisition of Barracuda Networks for $1.6 billion. (JEGI Transaction Database and 451 Research LLC)

M&A activity slowed in 2017 but is anticipated to pick back up in 2018. Enterprise security is expected to be the most active sector within the technology M&A space. According to a survey conducted by 451 research, most bankers expect technology M&A valuation to stay the same, with only 33% of them expecting higher valuations and 23% expecting lower valuations. (451 Research)

Private equity firms have more funds than ever to use for acquisitions. Therefore, technology M&A is expected to be continuously driven up by PE buyouts in 2018 for the 5th consecutive year. In addition, PE firms are also starting to invest in the relatively early-stage, cash burning businesses that they rarely ever touched before. Though less strategic buyers are involved in technology M&A, the new tax plan approved in December 2017 does favor corporate acquirers.

For more information or to discuss a software M&A opportunity, please contact us.