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Sky-high multiples signal enterprise software boom

The smart money is continuing to look to buy enterprise software companies, says new research.

In its latest analysis of global Mergers & Acquisitions activity in Enterprise Software, Hampleton Partners reports the highest deal count ever recorded, with 651 transactions inked over the first half of 2019. Multiples were also sky-high; the trailing 30-month median EV/EBITDA multiple peaked at 17.5x, inching its way up from last year’s levels. Revenue multiples also grew, reaching a record 3.8x in 1H 2019.

And this boom in demand shows no signs of slowing, it says. Miro Parizek, founder and principal partner, Hampleton Partners, said: “In spite of any economic slowdown and public market volatility, companies are sprinting towards SaaS and software targets to cover all areas of digitalisation and digital transformation.  Financial buyers, with access to cheap debt, are eager to capitalise on this drive for digital transformation and are especially targeting the US marketplace, as 73% of PE acquisitions targeted a North American company.”

“Although we expect the sector’s record-breaking metrics to ease away from their current peak, the sector is set to remain stable and strong over the long-term. The need to improve business insights and resource allocation will remain imperative for every business, and be spurred by further advances in machine learning and artificial intelligence for SaaS and cloud-based software.”

Hampleton Partners’ report noted two major M&A trends:

•             Large acquisitions and high valuations: disclosed transaction value for the half-year reached $71 billion and consisted of many nine-digit and billion-dollar deals, such as Salesforce’s mammoth acquisition of Tableau’s business intelligence analytics and data visualisation business for $15.1bn and Dassault’s acquisition of Medidata for $5.7bn.

•             The highest recorded share of private equity or financial holding company transactions: 34 per cent of all transactions were carried out by financial buyers, up from its peak of 31 per cent in 2017 and around 19 per cent in 2018.

Technology innovations that attracted buyer attention included:

  • Macro visualisations of big data -  Google venture arm Alphabet made a $2 billion play for Looker, a provider of big data business intelligence analytics and visualisation, data modelling and discovery SaaS. Google will combine elements of Looker into its Google Cloud suite and allow customers to harness data to help drive their digital transformation. This was also the sub-sector that saw thee biggest deal of the year so far, with Salesforce’s acquisition of Tableau for more than $15bn.
  • 3D software tools - Alibaba acquired InfinityAR, developer of 3D augmented reality software and Adobe made a $105m bet on Allegorithmic, to enable 3D and immersive workflows and tools in its Creative Cloud suite.
  • Edtech - Education software struck a chord with private equity buyers, with deals such as Renaissance Learning’s acquisition of Early Learning Labs and LDC’s acquisition of Texthelp.
  • Healthcare SaaS - Practice management, data recording and medical billing solutions are proving popular with financial buyers. Valsoft acquired XLDent, a dental practice management SaaS, which provides electronic dental records management, clinical charting, patient check-in and employee time recording.

Download the full Hampleton Enterprise Software M&A Report here:

Hear Hampleton director Jonathan Simnett on the impact of this on the managed services sector at the Managed Services Summit North, on October 30 in Manchester. Details and registration here