M&A Market Dynamics – Software & Technology
Software and technology M&A activity in Q3 2024 showed signs of improvement compared to the previous quarter. Total software and technology deal value increased by over 30% compared to Q2, while software specifically observed a 23% increase in deal volume.
Valuations remain suppressed compared to the post-pandemic highs, but differentiated companies in the sector can still see competitive processes driving broad interest and strong valuations. Private equity buyers, in particular, may view add-on acquisitions as an attractive avenue to spur portfolio company growth and position them to exit platform investments made during the height of tech M&A activity.
- After a decline in Q2 2024 in both total software deal volume and deal value, Q3 2024 saw an uptick in deal volume but a continued decrease in deal value. Despite software total deal value declining 22% in Q3 2024 compared to the prior quarter, the broader software and technology industry saw a 32% increase, reaching $145B and demonstrating resilience in M&A activity for other technology segments.
- Total software deal volume increased 23% in Q3 2024 compared to the previous quarter and was roughly flat compared to the same quarter one year ago. There were fewer transactions above $250M of value but over 30% more under $250M of value, revealing the shift of increased M&A activity away from larger companies and toward small to mid-size businesses.
- In this tight financing environment, many buyers, particularly private equity buyers, are diligent when deploying capital. According to 451 Research, software and technology spending by private equity firms is up, but valuations are down. So far, in the first three quarters of 2024, private equity firms have been paying an average multiple that is one-third lower than during the peak valuation time of 2021. These firms may feel pressure to be conservative with valuations as many of their current portfolio companies were purchased at a valuation that exceeds the current market valuation, leading to a hesitancy to exit their investments.
