Solganick & Co. - Investment Banking and M&A Advisory Firm

Solganick & Co. issues Software M&A Update for Q2 2016

July 8, 2016 – Solganick & Co. has issued its latest Software M&A Update for Q2 2016.

Here is the summary highlights of the report:

The software sector experienced very strong deal activity in the second quarter of 2016. Deal value for Q2 2016 totaled $43 billion across 545 transactions. Both metrics are improvements on the first quarter’s deal value and volume, which were $21 billion and 523, respectively.

  • Deal value in H1 2016 increased to $66 billion from $57 billion in H1 2015. Deal volume in H1 2016 rose to 1,068 from 1,027 in H1 2015.
  • Of the 1,068 deals in H1 2016, 196, or 18%, involved financial buyers.
  • The median revenue multiple in H1 2016 rose to 3.2x from 2.1x in H2 2015. The median EBITDA multiple remained at about 13.1x.
  • H1 2016 transactions with enterprise values between $10 million and $20 million had a median revenue multiple of 2.5x.

 

Key Industry Trends

 

As evidence of the technology shift taking place in the information technology industry, there has been a resurgence of growth M&A (i.e product extensions) in the software sector, as opposed to non-growth M&A motivated by going private transactions and consolidation of large, established tech companies that have been the dominant factors behind tech M&A activity for the last 15 years. Large tech companies such as IBM, Salesforce.com, Microsoft and Oracle have made several acquisitions in the first half of 2016 that are apparently greared towards extending their product life cycles in an attempt to gain more revenues from leading edge technologies as revenues from their core legacy products stabilize or decline. For instance, IBM has leveraged its Watson artificial intelligence (AI) platform to extend into healthcare analytics and cloud-based services. Some of the growth driven acquisitions are highlighted below. Other tech giants Apple, Google, Amazon and Facebook have also made acquisitions in the recent past in the virtual reality (VR) and augmented reality (AR) space.

 

We expect deal activity in software to continue to increase. In particular, the Internet of Things (IoT) and Artificial Intelligence (AI) will continue to be key influencers.

 

The Internet of Things (IoT) – The Internet of Things refers to the network (and software) that connects separate devices to one another and the Internet. Through the IoT, devices can exchange collected data without the need for human assistance. This year is on track to be a record year for IoT mergers and acquisitions, led by the Cisco acquisition of Jasper Technologies for $1.4 billion in February. IoT deals are taking place quickly because companies are realizing that the technology can be applied to almost any sector, from manufacturing, to retail to healthcare. IoT companies that focus on the automotive and healthcare sectors are expected to see the most M&A activity in the long term. In the automotive sector, IoT will become a key component of self-driving cars. In May, Intel added to its automotive portfolio by acquiring Itseez Inc., a company that specializes in Computer Vision (CV) algorithms and implementations. Intel believes that the acquisition, along with its acquisition of Yogitech in April, will position it to use IoT to make self-driving cars safer. The healthcare sector has also seen high activity in 2016. Nokia made a push into digital health in April by acquiring Withings S.A., a leader in IoT for healthcare. Withings has infused IoT technology into several medical devices, including activity monitors, thermometers and blood pressure monitors. Medical devices are expected to soon share networks with applications on smartphones, and IoT will lead that development.
Artificial Intelligence (AI) – Artificial intelligence is one of the most exciting emerging technologies. Machines that have artificial intelligence have algorithms that mimic human cognitive functions, such as learning new tasks and problem solving. The technology is expected to become widely adopted, and Google, Facebook, Salesforce and other tech giants are preparing for that sea change by pursuing acquisitions agressively. In the first half of 2016, Apple acquired facial recognition software company Emotient, Salesforce acquired machine learning companies PredictionIO and Metamind, and Twitter acquired visual processing technologies company Magic Pony Technology. As a result of the growing interest in AI, 2016 is on pace to become a record year for the technology. According to Vator, deal volume in 2015 totaled thirty-six deals. In the first half of 2016, twenty-four deals were announced. If the second half of 2016 yields the same number of deals to bring the total to forty-eight, 2016’s deal volume will be 33% greater than that of 2015.

 

You can read and download the complete report here: Solganick Co Software MnA Update (Q2 2016)

 

For more information about Solganick & Co. go to: solganick.com

 

Contact Info: [email protected]

 

 

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