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| Home - Software M&A Review - Apr 03 Issue |
Software M&A - Q1 in Review
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Acquirers spent $4.7B on software businesses during the quarter, at an average purchase price of $17.3M, a 10% reduction from Q4. The cause? Fewer “mega” deals, increased buyer interest in small and midcap niche or vertically focused businesses, and a number of “fire sales” at depressed valuations.
Unlike, the SEG-SEVENTY, which experienced a 15% increase in value when measured as a multiple of revenue, the median software M&A multiple fell to 1.1x, from 2.0x (see Figure 4). However, we believe this decline is an aberration, as the first quarter saw a significant reduction in the number of strategic acquisitions and a disproportionate number of asset purchases out of bankruptcy – examples include Primavera’s acquisition of Evolve and Amdoc’s purchase of Exchange Applications. Moving forward, we anticipate that M&A valuations will enjoy a premium over the public markets, as has historically been the case. A closer look at Q1’s more strategic acquisitions reveals that healthy valuations still exist for the right opportunities.
Cisco / Okena; est. revenue multiple: 25.7x
Microsoft / Placeware; revenue multiple: 5.6x
Itron / Silicon Energy; revenue multiple: 4.7x
No surprise, cash remains king. Cash continues to be the preferred acquisition currency as many buyers maintain the view that their stock is undervalued (see Figure 5). 70% of buyers used cash – an 8% increase over the previous quarter, 17% stock, and 13% used a combination of the two.
M&A: Most Active Software Sectors
Computer aided engineering, CRM, security and SCM were the most active categories during the first quarter. Representative transactions include:
Computer Aided Design / Engineering
ANSYS / CFX
Bentley Systems / Infrasoft Corp.
Intergraph Corp. / Pelican Forge Software Corp.
Customer Relationship ManagementConvergys Corp. / CygentSkywire Software / Attenza The Cobalt Group / Cowboy Corp.
Supply Chain ManagementClick Commerce / Allegis Corp.RiverOne / SoftchainSEEC / Assets of Asera
Security / FirewallCisco Systems / OkenaNetwork Associates / DeersoftTumbleweed Communications Corp. / Valicert
While there was a heterogeneous mix of active software categories, Energy/Utility and Government/ DoD were certainly the dominating industry verticals, comprising approximately 8% and 10% respectively, of the acquisitions we identified during the quarter.
Energy / UtilityExcelergy / ForwardmarketIndus Int’l / SCT's GEUS Business UnitItron / Silicon EnergyLodestar Corp. / Advanced Utility Solutions SunGard Data Systems / Caminus Corp.SunGard Data Systems / HTE TRADEPAQ / Lester Associates
Government / Department of Defense (DoD)
Boeing / Conquest
General Dynamics / Creative Technology
ManTech Int’l Corp. / Integrated Data Systems
Perot Systems Corporation / Soza & Company
SAIC / SCIENTECH
SAIC / VGS
SFA / Analysis Corp.
SRA Int’l / Adroit Systems
Zanett / Paragon Dynamics
M&A: Most Active Buyers
As the following indicates, Cisco led the quarter with the largest transaction, and was joined by Hummingbird, Microsoft, Open Text and SunGard as one of the more acquisitive companies.
Cisco SystemsLinksys Group, $500MSignalWorks, $13.5MOkena, $154M
HummingbirdKey Automation/Dispro, NDLegalKEY Technologies, ND
Open Text Corp.Corechange, $4.2MEloquent, $6.7M
SunGard Data SystemsHTE, $121MCaminus Corp, $159M
Overall, it was a challenging quarter for M&A. Moving into Q2, we continue to forecast a 10% increase in software M&A for the year, as U.S. economic growth, increased competitive pressure, and the Software Fortune 50’s growing interest in the midmarket serve as catalysts. Further, our experience indicates buyers have begun to transition away from cost cutting initiatives and are showing more receptivity to growth opportunities. This is good news for sellers that may be considering an exit.
CONTACT INFORMATION
Software Equity Group, L.L.C.
12220 El Camino Real, Suite 120
San Diego, CA 92130
www.softwareequity.com
p: (858) 509-2800
f: (858) 509-2818
 
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