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Mergers and Acquisitions: Software Dominates M&A Activity Q1 2019

Software continues to “eat the world,” said investment banker Jegi, in its new report on Q1 2019 mergers and acquisitions (M&A) activity.

What, exactly, did Jegi and M&A advisor Clarity, which together publish an annual report and quarterly updates on M&A activity, mean by such a bold statement? In the five core sectors where they concentrate -- consumer media, B2B media, Adtech, human capital management and software technology and services -- it’s software that nearly lapped the field in Q1 2019 both in terms of number of deals and the associated value.

Consider the numbers:

  • Of the 891 M&A transactions valued at nearly $80 billion produced by the five sectors in Q1 (a 35 percent spike over the same period last year) software accounted for 384, or 43 percent, of those deals, valued in sum at $54.3 billion.
  • The next closest sector, B2B media, posted 233 deals valued at only $5.3 billion. In terms of dollars alone, human capital management firms announced 90 deals valued at $9 billion.
  • Overall, the number of deals year-over-year slid by 37 percent from the 510 of Q1 2018. But the M&A activity of a year ago produced $20 billion less than in Q1 2019. So fewer deals got done in Q1 2019. However, those that did get done were as a group bigger.
  • Software’s dominance in Q 2019 exceeded its performance of the year earlier period, when the sector accounted for 36 percent of all transactions or 34 percent of the total value of $59 million.

A number of large software transactions during the quarter stood out not just for their size (SAP’s $8 billion and 20x revenue buyout of Qualtrics, a customer experience analytics software developer) but also for the reverberations in their markets. The SAP transaction and the Survey Monkey successful IPO is likely to fire up the entire customer experience market as well as the entire market, Jegi/Clarity said.

“Despite lingering concerns around market volatility and economic uncertainty, optimism remains high among dealmakers. Increased cash held by corporations, partly fueled by tax reform, will likely help facilitate an increased number of transactions,” the M&A specialist said.

This is the software sector’s potential, as Jegi/Clarity sees it: Some $10 billion of venture capital and private investment money is sitting on the sidelines waiting for the right opportunities in the customer experience segment. “As with digital agencies and consultancies, the big M&A catalyst in the research and insights market is the outlook for sustained corporate spending on customer experience services and technologies, and downstream spending on brand and business digital transformation,” the report said.

What’s the total available market opportunity for service and technology combined? Some peg it at more than $500 billion, Jegi/Clarity said.

Another software category that Jegi/Clarity is hot on is Vertical software-as-a-service (SaaS), in particular, SaaS for small to medium-size businesses. “We expect to see more consolidation here, and also expect to see private equity firms getting more creative in establishing platforms via simultaneous M&A transactions,” the report said.