{"id":18495,"date":"2020-04-22T19:00:51","date_gmt":"2020-04-22T17:00:51","guid":{"rendered":"https:\/\/staging.capitalmind.com\/more-ma-in-software\/"},"modified":"2024-05-24T16:10:06","modified_gmt":"2024-05-24T14:10:06","slug":"more-ma-in-software","status":"publish","type":"post","link":"https:\/\/working.capitalmind.com\/de\/more-ma-in-software\/","title":{"rendered":"High degree of M&A in software recently"},"content":{"rendered":"

M&A in software (as a service)<\/h2>\n

In recent years, we have seen much M&A in software (as a service). This is due to a mix of Software companies acquiring both (i) functionality and (ii) geographic \/ customer presence. On top of that, there are notably more buyers due to more active private equity and \/ or venture capital investors. Both investor types are nowadays executing so called \u2018Buy & Build\u2019 strategies.<\/p>\n

What particularly struck our attention is the increasing international nature of Software transactions. In our analysis of over 400 Software transactions executed in the past 4 years shows that 58% of the transactions are cross-border. For 2019 this number even stands as high as 68%(!). The picture below shows the geographic locations of buyers that acquire targets headquartered in Europe.<\/p>\n

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Source: S&P Capital IQ<\/p>\n

Larger software M&A transactions have higher valuations<\/h2>\n

During our analysis of the transaction landscape we also looked at valuations. Similar to what we see in other industries, that larger transactions have higher valuations than smaller transactions. As the table below shows, EBITDA to Enterprise Value multiples, show a correlation with the size of the transaction.<\/p>\n

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\nOddly enough, there also always appears to be a peak at a certain valuation point. In our view (and experience) this point indicates where most demand is. In this particular case, this size preference could be related to ideal ‚ticket‘ sizes for private equity companies active in the software market. However, in the end the largest transactions get the highest multiples. Most likely because such deals are more scarce and attract a larger pool of (global) buyers. Private equity is clearly attracted to the sector: it pays off for to build larger software companies by buying (multiple) smaller, cheaper companies.<\/p>\n

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In the end key drivers for the valuation is probably the solid economic growth of the global economy between 2016 and 2019. So far, valuations peaked in 2018 and considering the current corona crisis, valuations are likely to come down. Software industry valuations are highly influenced by a number of factors including:<\/p>\n