M&A Market Dynamics – Software & Technology
Transaction volume and total value increased significantly in Q1 2024 compared to the previous quarter for the software & technology sector. Many investors anticipated improved appetite for tech M&A going into 2024, and although Q1 showed a strong uptick, there are still reasons for cautious optimism.
Though the quarter appeared strong in totality, March saw a noticeable decline, with the 10 largest transactions all occurring in the first two months of the quarter. Concerns over the general economy, interest rates, and growth rates across the IT sector continue to weigh on investors. The current uncertainty paired with increased M&A activity in the quarter suggests there are still attractive deals being pursued in the sector, but buyers are being highly selective.
- After a meaningful drop last quarter, broader technology sector total deal value in Q1 2024 increased 45% compared to Q4 2023 and more than doubled Q1 2023’s figure, with $121B in transaction value. The increase is due to software specifically, with software total deal value climbing 180% while other technology sectors decreased roughly 5% relative to the prior quarter.
- Compared to Q4 2023, Q1 2024 software deal volume increased 15%, with 578 transactions in the quarter. This represents a marked improvement quarter-over-quarter, but still well short of the first three quarters of 2023. The combination of rebounding deal values and steady deal volumes may indicate market stabilization after post-pandemic record highs and subsequent lows following the series of interest rate hikes.
- The considerable uptick in spending in Q1 2024 is surprising in some regards given the financing environment. For private equity buyers, the cost of debt is still at elevated levels, placing increased pressure on their returns. For strategic buyers, who accounted for the clear majority of spending in Q1 2024, they utilized a historically small portion of equity as part of the transaction. Using their own equity in addition to cash is often a favored approach for strategic buyers, but the Q1 run-rate is tracking towards the lowest number of technology transactions with an equity component in the 20-year history of 451 Research’s database.
