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| Home - Software M&A Review - Nov 05 Issue |
Software M&A - Robust Q3 Deals Despite Katrina
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 Vertical Markets
Vertical market software company acquisitions comprised about 25% of M&A transactions in 3Q05, compared to 15% in 2Q05. Vertical market buyers paid a median 2.4x TTM multiple, mostly for products and enabling technologies which extend their suites and provide competitive differentiation. The financial market was the most active software M&A vertical, although 3Q05 again saw significant activity in healthcare sector deals. Open Solutions, a leading developer of integrated data processing technologies for banks and credit unions, paid an estimated 2.0x for COWWW, a provider of web based archiving, retrieval and document distribution solutions. StatPro, a software company specializing in portfolio analysis software, acquired Delve, a solution provider to asset managers. Torex Retail, jumping into the retail M&A fray, acquired London Exchange listed Anker to strengthen its retail vertical offering.
Product Category Consolidation
Consolidation plays, in which buyers acquire smaller competitors in their markets to gain market share and eliminate competition, comprised 11% of total software M&A activity in Q3. Consolidation median deal multiples in 3Q05 decreased to a median 2.0x TTM, down from 2.5x in 2Q05 as a result of fewer large public company buy-outs. Notable 3Q05 transactions in this category included Oracle's acquisition of Siebel Systems, the CRM leader that has struggled for several years to regain its former glory; Secure Computing, a security software vendor that acquired CyberGuard to gain leverage with increased revenue and market share; and Concerto Software, a leading provider of call center management solutions that merged with fellow call center management provider Aspect Communications in a deal valued at approximately $1 billion. (Figure 16 & 17)
Investment Opportunity
Although VCs and private equity firms provided the financing that enabled many of their portfolio companies to act as buyers, some VCs and private equity firms opted to invest directly. In Q3, as in the prior quarter, 4% of transactions featured financial buyers. The most significant leveraged buyout was The Carlyle Group's acquisition of high flying financial software provider SS&C for a hefty 8.5 times trailing-twelve-month revenue.
Software M&A Trends and Insight: Industry Consolidation Recap
Our Trends section last quarter analyzed recent developments in software industry consolidation and the changing buyer landscape. In summary, we observed the acquisition and departure of some 300 public software companies in the past 48 months (virtually all of which had been active acquirers themselves) and a mere 47 software IPOs during the same period. The result has been an unprecedented diminution in the number of public software companies and a changed buyer landscape that has profound consequences for software industry mergers and acquisitions.
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