Saturday, May 21, 2016

Berkery Noyes Software Industry M&A Report For Full Year 2015

Berkery Noyes has released its full year 2015 mergers andacquisitions trend report for the Software Industry. The report analyzes M&A activity in the Software Industry during 2015 and compares it with data covering 2013 and 2014.

Deal volume experienced a nine percent year-to-year increase, with a total of 2,028 transactions in 2015. Overall value gained 72 percent, from $123.74 billion to $213.20 billion. This rise was attributable in major part to Dell’s announced acquisition of EMC Corporation for $67.48 billion, which was the highest value deal ever recorded in the industry.

The EMC acquisition accounted for almost one-third of the industry’s aggregate value in 2015. If excluded, total value gained 18 percent on a yearly basis. With this transaction, Dell is looking to combine its server businesses with EMC’s storage and virtualization assets, enabling it to better compete beyond the PC market with a wider range of products. Also of note, Michael Dell and Silver Lake Partners took Dell private in 2013 for $24 billion.

In terms of valuations, the median revenue multiple declined from 2.7x to 2.4x, while the median EBITDA multiple improved from 12.0x to 13.8x. Deals in the $10-$20 million range over the past three years received a median enterprise value multiple of 2.3x revenue, whereas those above $160 million had a median enterprise value multiple of 3.6x revenue.

Financial sponsors were responsible for five of the industry’s top ten largest deals in 2015. Three of these five transactions occurred in the Infrastructure segment. This consisted of The Carlyle Group’s announced acquisition of Veritas Technologies Corporation, a storage and server management software solutions business, for $8 billion; Permira and CPP Investment Board’s acquisition of Informatica, a provider of enterprise data integration software and services, for $4.77 billion; and Thoma Bravo and Silver Lake Partners’ announced acquisition of SolarWinds, an IT management software and monitoring company, for $4.38 billion.

As for volume in the Infrastructure Software segment, deal activity improved 19 percent over the past year. Upon examination of the information security subsector, Blue Coat Systems was a notable acquirer in 2015 with Elastica, a cloud security startup, for $280 million; and Perspecsys, a cloud data protection platform. This followed Bain Capital’s acquisition of Blue Coat earlier in the year for $2.4 billion. With these acquisitions, Blue Coat is positioning itself as a leader in the cloud access security broker (CASB) space. Regarding high profile strategic Infrastructure deals, EMC acquired Virtustream, which offers cloud computing management software, for $1.2 billion prior to the Dell acquisition.

The Consumer Software segment underwent a 27 percent decrease in volume. This followed a 14 percent rise between 2013 and 2014. The largest Consumer deal during 2015 was the announced acquisition of Qihoo 360 Technology, an internet security company based in China, which was taken private by an investor consortium for $8.28 billion.

Transaction activity in the “Niche Software” segment, which is targeted to specific vertical markets, saw a 17 percent gain. Three of the industry’s top ten deals occurred in the Niche segment, including two related to the automobile market. Accordingly Vista Equity Partners acquired Solera Holdings, which provides risk management software to the automotive and property marketplace, for $6.25 billion; and Cox Automotive acquired Dealertrack Technologies, a web-based software solutions and services company for automotive retailers, for $4.36 billion.

Meanwhile, the number of deals in the Business Software segment, which consists of software designed for general business practices and not specific industry markets, increased 12 percent. The most active acquirer in the Business segment in 2015 was Microsoft with seven transactions.

“With the increased adoption of cloud and SaaS environments even software companies are recognizing the innate ability to integrate rather than develop everything," said James Berkery, Chief Information Officer at Berkery Noyes. "It stands to reason as more software solutions appear on the web that the proliferation of the API has begun to create an integration market unto itself. A sort of API marketplace with brokered solutions, tech enabled services and niche applications is poised to capitalize."

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