M&A MARKET DYNAMICS – SOFTWARE & TECHNOLOGY
- Q1 2020 deal activity remained strong despite the emergence of COVID-19. 664 software transactions occurred over the period (296 of which were SaaS businesses). Acquiring entities were evenly split between private equity and strategics. Strategic M&A activity has fallen off after Q1 due to uncertainty in the market. Activity is expected to pick up in the second half of 2020.
- Median EV/Revenue multiple over the quarter was 4.8x – in line with the past 3 years. The PMCF Public Software & Technology Index has surpassed pre-COVID levels with a TEV/Forward Revenue multiple of 5.6x.
- With an accelerated need for digital transformation, the software & technology industry remains an attractive target to acquirers. Well capitalized strategic and financial buyers may have many potential acquisition opportunities.
SECTOR SPOTLIGHT – INFRASTRUCTURE, COMMUNICATIONS, & COLLABORATION
The software & technology industry is approaching pre-COVID valuation levels. Certain segments have even experienced tailwinds as a result of the pandemic and are expected to see expansion in M&A activity and valuation multiples. As the remote workforce continues to grow, many believe that it will become the “new norm.” 74% of organizations plan to shift a portion of employees to remote working permanently.
As a result, demand for IT infrastructure, communication, and collaboration tools has increased as businesses work to facilitate secure cloud-based environments and support collaboration and productivity. Beyond providing necessary technologies, these companies remain attractive targets due to their recurring revenue business models and strong profit margins.