30 Jun Software M&A Update for Q1-2019
Private equity firms used to ignore emerging technology companies until they had scaled. That left venture capitalists, angel investors, family, and friends as the best options for entrepreneurs with small, growing businesses. But in the last couple of years, traditional private equity firms and some corporate buyers have jumped in and started investing heavily in the software space, even in relatively small companies. You can see it in the numbers from a recent Solganick & Co. report on global software M&A activity.
M&A deal activity in the industry continued its upward trend in Q1 2019. The M&A value for software in the first quarter, according to the report, was $73.75 billion on 552 transactions. Software accounted for 47% of the total M&A transactions, a huge increase compared to 36% of all transactions in Q1 2018. The SaaS M&A market is booming, reaching an all-time quarterly record of 277 deals. SaaS valuations remained high at a median multiple of 4.5x Revenue (on median deal size of $87 million).
A few takeaways:
- Private Equity buyers are very active acquirers of SaaS companies.
- Buyers are increasingly doing smaller deals, at a more frequent pace.
- Buyers are targeting technology companies with vertical offerings to go after specific market segments and new types of customers.
- The increased number of deals is being driven by strategic buyers actively acquiring technology companies to stay competitive, and PE firms diversifying their investments by engaging in both majority and minority equity deals in response to the increasing competition in M&A.