tech ip ma

Software M&A Update YTD and Q3 2018

October 31, 2018 – Solganick & Co. has issued its latest software M&A update for YTD and Q3 2018.  Here are the highlights of the report:

Total software M&A transaction volume in Q1-Q3 2018 increased by 31% compared to Q1-Q3 2017, from 318 to 417.

Total transaction value in Q1-Q3 2018 rose by 264% over Q1-Q3 2017, from $16 bn to $60 bn.

Median EV/Revenue Multiple: 5.77x

Median EV/EBITDA Multiple: 26.92x

The software industry continues to be very active:

  • Broadcom acquired CA Technologies for $18.9 billion
  • Duo Security acquired by Cisco Systems for $2.35 billion
  • Accruent acquired by Fortive for $2 billion
  • Eze Software Group acquired by SS&C Technologies for $1.45 billion

 

Strategic buyers have the highest EV/LTM Revenue multiple in 2018. Non-technology buyers are paying an average of 15% higher enterprise transaction value to acquire software companies.

 

Outlook for 2018

Software vendors will continue to accelerate their push towards cloud-based solutions and strengthen their offerings in high-growth areas like Artificial Intelligence, Machine Learning, and Internet of Things.

Potential trade wars and tariffs proposed by the U.S. administration can potentially threaten M&A activity both in the U.S. and especially cross-border. Cross-border M&A has slowed down in 2018 and may continue to slow further as trade wars and tariffs increase.

M&A activities started strong in the first half of 2018 and are expected to stay active throughout the remainder of the year. The economy presents a favorable condition for M&A activities, as general economic conditions remain strong heading into the second half of the year.

The increase in corporate purchasing power due to an extended period of strong earnings has enabled strategic buyers to pay more for acquisitions. The S&P 500 EV-to-EBITDA ratio is currently at 13.0x, compared to 8.6x just five years ago. Over the same time period, EBITDA per share for the S&P 500 increased by over 22%, reaching $61.0 in Q1 2018. The expanding valuations in public markets coupled with strong corporate earnings have created a buoying effect on market transaction multiples.

For the remainder of 2018, we expect deal volume in the software sector to continue to be strong, yet slightly down from its peak in 2017.

 

You can download the complete report here: Software M&A Update Q3 2018

 

About Solganick & Co.

Solganick & Co., Inc. is an independent investment banking and M&A advisory firm focused exclusively on the global software and tech-enabled services industry sectors. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with entrepreneurs, companies and leading private equity firms within the sectors we cover.

Please contact us for information regarding this report or to inquire about an M&A transaction.

 

 

Posted in Quarterly Update, Sector Analysis, Software M&A and tagged .