Software Median Deal Values Highest Since 2002

Software Company technology transactions across all vertical and horizontal markets had a huge jump in 2018, resulting in market valuations that were the highest they have been since 2002.

  • Increase in Deal Volume: 20%
  • Increase in Deal Value: 202%

It won’t simply be business as usual again this year as you experience even more companies in your industry merging and becoming more formidable competitors. There have been well over a dozen multibillion-dollar transactions already in 2019 and these are likely to create opportunities in the middle market as add-on acquisitions and further consolidation occurs.

The trend for 2019:

1. 2019 is likely to see continued high levels of deal volume and value as both corporate buyers and investors (private equity firms) compete for good quality targets. Many corporates have a vast amount of excess cash on their balance sheets to deploy and are actively pursuing a “buy” vs. “build” strategy to remain agile and competitive in rapidly changing market environments. Private equity firms (over 4,000 in the US alone) have more than $1 trillion in dry powder to invest and are more active in the market than ever before.

2. Current market conditions are highly competitive and not likely to get materially better in the near term for shareholders to explore a sale, merger, or capital raise. If you are thinking about doing something in 2 to 3 years, it will be very important to pay attention to indicators in your market.

Most software companies will choose one of these strategies in 2019:

  • Take advantage of current market conditions (more demand than supply of good quality acquisition targets) to explore a sale to a synergistic buyer who can invest in growth, provide liquidity to the shareholders, and offer your people and customers greater resources and growth opportunities; we are seeing shareholders roll some equity with more frequency today as they look to optimize valuation in today’s strong market but also want to work towards a second, potentially much larger, transaction in a few years
  • Pursue an acquisition strategy with the goal to enter into new markets and add critical mass, customers, complementary products/services, and profits at a much faster pace than organic growth would achieve
  • Pursue growth equity or debt to help add the resources needed to push top-line revenue growth
  • Grow organically, aiming for higher than average industry rates, increasing the value of your firm and positioning it well for any future financing, acquisitions or a sale (managing and financing growth will be the challenge for many firms; pursuing equity or debt funding may be necessary or it may be more advantageous to pursue strategy 1 above)

Tequity helps shareholders explore these options and can provide guidance on which of these may be most aligned with their objectives.

Given the competitive environment in today’s market, companies that get approached should bear in mind that talking to one buyer doesn’t provide them with any leverage.  In almost every situation that we have seen, the firm that made the initial approach does not turn out to be the eventual buyer. Most companies will find that the initial company won’t be the best strategic fit (shared vision, culture, synergies post-transaction) nor will they have the best offer. The best way to maximize your outcome is through a well-managed market process by an experienced firm.

It’s obvious that we are seeing unprecedented market conditions for sellers. Note that 2019 includes transactions to mid-March.

If the shareholders or Board are evaluating options or simply interested in learning a little more, let’s schedule a call


YOY Global Software M&A Trends

Annual M&A Software Median Multiples



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