M&A MARKET DYNAMICS – SOFTWARE & TECHNOLOGY
- Q2 2020 deal activity experienced a slowdown as COVID-19 impacted the market and economy. 207 SaaS transactions occurred over the period, a significant decrease compared to the 296 transactions in Q1. Acquiring entities were evenly split between private equity and strategics. May marked the low-water mark, with 62 SaaS transactions completed during the month. Activity picked up in June, a trend expected to continue in the second half of 2020.
- The median EV/Revenue transaction multiple over the quarter was 4.8x – in line with the recent past. The PMCF Public Software & Technology Index continues to surpass pre-COVID levels with a TEV/Forward Revenue multiple of 5.8x.
- 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
Healthcare specific software has consistently ranked as the top vertical for SaaS M&A activity in recent years, Q2 2020 included. The healthcare industry faces unique requirements (privacy, security, compliance, etc.) that generally preclude the use of horizontal offerings in its operations. Vertical offerings, which are tailored to the industry, are often more cost effective as they are more readily customized.
Furthermore, healthcare providers often utilize multiple locations (and devices) in the conduct of their practice – cloud-based platforms easily accommodate this dynamic. It is likely that this trend will continue as new developments drive further demand. For example, Artificial Intelligence-optimized solutions are already increasing operational productivity through natural language processing and improving clinical outcomes through pattern detection.