February 14, 2017 – Solganick & Co. issues its latest Software M&A Update for Q4 2016. Here are a few of the highlights:
- In Q4 2016, there were 248 software M&A transactions with a total deal value of $38.8bn, due to one of the most notable deals in 2016, Microsoft’s $29bn acquisition of LinkedIn.
- Overall M&A activity across software industry remained high in 2016, with 2064 transactions announced at a total value of $153.28 bn. Deal volume remained the same yet total value showed 28% decline over 2015, from $214.01 bn to $153.28 bn, which totaled $214.01 bn.
- The median revenue multiple increased from 2.4x in 2015 to 2.8x in 2016 while the median EBITDA multiple moved downward from 13.3x in 2015 to 12.5x in 2016.
2016 is a rocket year for financial sponsored transactions in software. There were 369 financial sponsored transactions with an aggregate value of $50.43 billion, representing 18 percent of the total volume and 31 percent of the total value, respectively.
The software M&A markets have been on fire. Strategics want and need newer technologies to stay relevant — they acquired $72B in companies in 2016. Their core business growth is declining, cash balances are at or near all-time highs, and given the run up in the markets, they are trading at high multiples. These three things combined are a perfect storm for M&A. Strategics are also paying premium multiples for these businesses. One typical example would be Microsoft’s $29 bn bid for LinkedIn, which is a huge deal between two giants who have already saturated their own markets.
2016 is also a big year for private equity (PE) firms, which announced an unprecedented number of transactions in 2016, topping the previous record by 25%. Software-focused PE firms like Vista Equity Partners have large, new funds, and are not only paying high multiples, but buying companies that aren’t even profitable. These firms acquired over $15B of companies in 2016. One typical example would be that Vista Equity Partners acquired Infoblox through a $1.6 billion LBO on November 07, 2016.
Part of the reason for the emergence of this new class of buyers in the software industry is that several of the reliable acquirers have pretty much stopped shopping. For instance, the two companies that make up the historic Hewlett-Packard (Hewlett Packard Enterprise and HP Inc) were, collectively, net sellers rather than net buyers in 2016. Even relatively new and highly valued Dropbox (once a so-called ‘decacorn’ for its $10bn funding valuation) did not purchase a single company last year, after snagging four in 2015 and 10 in 2014.
For the complete report go here: Solganick and Co Software M&A Update, Q4 2016
Formed in 2009 by experienced M&A and investment banking professionals, Solganick & Co. is a boutique investment bank and mergers and acquisitions (M&A) advisory firm that provides specialized expertise in the software, IT services and digital media sectors. Solganick & Co. offers strategic and financial buyer relationships within the industry, a deep knowledge about these industries, and a premium team of investment banking professionals. Our team assists companies to complete mergers and acquisitions strategically and/or financially beneficial to your firm’s business model and transaction goals.
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