Global Software Sector Update – Winter 2020

Heading into 2020, software M&A activity and valuations will likely remain strong at least for the first half of 2020, but we anticipate rising uncertainty into the second half of the year with the U.S. presidential election in November 2020. Additionally, in 2020 other technology sectors may continue to soften given continued concerns around global economic uncertainty, supply chain disruptions caused by the Coronavirus and continued trade tensions between the U.S. and China.

2019 saw a bifurcation in the technology M&A market, with a record year for software M&A volumes and the second largest by value, following an outlier 2018 marked by a large number of multibillion-dollar deals. This positive and consistent trend is evident in the increase in multiples for software deals, where median revenue multiples reached 4.5x revenue in 2019, up from 4.4x revenue in 2018 and up from as low as 2.7x revenue in 2013.1

 Global Software Sector Update – Winter 2020 | Pagemill Partners, a division of Duff & Phelps

In terms of deal themes, 2019 marked another year of the “change of the guard”, as the industry’s long-time buyers are no longer acquiring at the same rate, both in terms of volume and value. In parallel, private equity’s participation in technology M&A deals, and in particular software buyouts, has increased steadily over the past several years, and participation has consistently accounted for over 30% of all software buyouts, up from just 11% in 2010.1 2019 has also been highlighted by the “verticalization” of software continuing to gain prominence with investors, open source models becoming mainstream, and acquisition of developer-centric capabilities and platforms.

 

Source
1 451 Research as of December 31, 2019

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