5-year high for enterprise software M&A at $182bn, AI and ML advances will boost further

The latest M&A market reports from international technology mergers and acquisitions advisor, Hampleton Partners, on the Enterprise Software and IT and Business Services sectors show consistent growth in transaction volume, multiples and valuations, with Enterprise Software M&A disclosed deal value achieving a whopping $182.2 billion in 2018 – a five-year high.

In the second half of 2018, M&A volume in the Enterprise Software sector also reached its highest level in five years: a total of 629 deals were recorded, representing an increase of 35% since the low of 465 deals in H2 2013. The figure included deals from large strategic players such as Microsoft, Oracle, Salesforce, Adobe and SAP.

Miro Parizek, founder at Hampleton Partners, said in a statement: “We are witnessing a land grab for innovative software and IT companies. On the one hand, verticals such as healthtech and fintech are experiencing rapid growth and are compelled to update and adapt their systems, software and processes simply to keep up the pace and survive in the face of their competition. On the other hand, large strategic and legacy players are pursuing a comeback to the market, acquiring innovative, horizontally applicable software to remain relevant and versatile.”

“As the record-high valuations and volumes show, this competition for tech and talent is driving-up M&A valuations to a peak,” he added.

Blockbuster deals included IBM spending $33.4 billion all-cash on open-source software provider Red Hat. IBM is keen to boost its position in the hybrid cloud market and Red Hat’s version of the open-source Linux operating system will provide IBM with a steady stream of revenue as more companies move off-premise.

IT & Business Services M&A

Hampleton’s IT & Business Services M&A Report reveals a total count of 421 transactions for 2018, including a total of seven billion-dollar deals and many deals in the hundreds of millions.

The sector’s largest disclosed transaction was the $6.7 billion sale in September of Sedgwick Claims Management, a provider of tech-enabled insurance claims processing in North America, to global private equity firm The Carlyle Group.

In this sector, outsourcing deals have remained extremely popular, offering new talent, connectivity and even competitive labor overseas to companies seeking to keep up the pace in a rapidly changing technological environment. Integration services also struck a note, and will no doubt remain sought-after following this half year, particularly among public sector organizations and providers to government agencies looking to improve and integrate systems securely.

Key M&A Trends

  • Traditional software players such as Microsoft, Adobe and Oracle returning to the M&A landscape to remain relevant and versatile.
  • Private equity firms continuing to acquire innovative enterprise software firms.
  • Cloud-based business consolidating, as legacy tech companies bolster their cloud capabilities through the acquisition of software companies.
  • Strong appetite for healthcare and financial services software.
  • Cross-border acquisitions playing a large part, with both North American and European companies targeting companies in Western Europe for expansion.

M&A Outlook for 2019

Hampleton’s Parizek added: “We anticipate growth in M&A across the enterprise software and IT sectors spurred by more advances in machine learning and artificial intelligence for SaaS and cloud-based software. As new players, large strategic acquirers and private equity firms all remain poised to capitalize on the integration of new tech and talent into established businesses, we will see higher competition, deal flow and valuations.”

Read the full reports: enterprise software and IT & business services

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