13 Mar 2023 M&A in the Software Industry
Overall Deal Volume Decreases: The software industry witnessed a 9% year-over-year (YOY) decline in mergers and acquisitions (M&A) volume in 2023, compared to a booming 2021 and 2022 driven by COVID tailwinds. Despite the drop, 2023 volumes remained strong, up 9% from pre-COVID levels in 2020, though Q4 saw a 7% YOY decrease attributed to the absence of transaction catalysts and macroeconomic uncertainties.
SaaS Sector Shines: Software as a Service (SaaS) M&A deal activity nearly matched its record-breaking 2022 volume, up 15% from 2021 and 58% from 2020, demonstrating resilience even as broader software M&A volumes normalized. SaaS transactions represented 56% of all software deals, marking a consistent trend of dominance in the industry.
Valuation Multiples Adjust: Median EV/TTM revenue multiples in Q4 2023 fell to 3.8x, a 10% drop from Q3, with a notable gap between average and median multiples indicating a mix of deal qualities but still favorable outcomes for high-performing businesses.
Sector Highlights: Sales & Marketing led the transaction count, followed by Analytics and Data Management, and ERP/Business Management, highlighting the market’s appetite for mission-critical technologies. Vertical SaaS, especially in healthcare, financial services, and real estate, gained prominence, reflecting a shift towards specialized, impactful solutions.
Private Equity and Future Outlook: Private equity remained a major player, especially in SaaS M&A, despite a slight YOY dip. The end of 2023 hinted at a revival of strategic buyers, setting the stage for an active 2024 with private equity still heavily involved. Global IT and enterprise software are on track for significant growth, with enterprise software leading as the fastest-growing IT segment, projecting to break past $1T in spending.
Looking Ahead
The software industry, particularly SaaS, continues to be a hotbed of M&A activity, driven by strategic acquisitions and private equity investments. Despite some economic headwinds, the sector’s resilience and the strategic shift towards specialized software solutions signal a robust market outlook for software M&A and other tech M&A in 2024.
