The pace of technological innovation had never been faster, and it forced tech and non-tech companies of all sizes to make acquisitions to keep up. Add to that the record levels of buyer cash, strong public markets and increasingly active and strategic Private Equity firms, and you have the recipe for a remarkable 2017. To get all the tech M&A details for the year ahead and the year just past, listen in with hundreds of technology CEOs globally for the largest tech M&A event of the year – Forecast 2017, the Global Tech M&A Report. We looked at the Top 10 Disruptive Technology trends that will drive deals in 2017, gave 2017 predictions, surveyed how our 2016 predictions turned out, unveiled the annual Corum Index of Tech M&A, and took a look at valuation metrics across the six technology sectors and 30 subsectors. Finally, the highlight of the event was our annual Luminary panel featuring SAP, Salesforce and more. You don’t want to miss the premier event each year for software company owners and CEOs.
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Welcome to Forecast 2017, our annual report. I’m Bruce Milne the CEO of Corum Group, your sponsor for this event.
We have a jam-packed schedule over the next hour, culminating in our luminary panel with some of the leading firms in the world like Salesforce, SAP, IBM, and one of the leading thinkers in the world, futurist Reese Jones.
But before we get there, we need to cover some of the market drivers; why this make be a record year. We’ll revisit our predictions and see how we did, and what we think 2017 will look like. We’ll look at the Top Ten disruptive trends that will drive our industry and your business this year. There are three new ones, so take a look at those. But there are a couple of clouds on the horizon.
Then, our annual report, summarizing the year in all of our sectors. That will be followed by our luminary panel and then Q&A, so be sure to ask questions along the way.
2017 Tech M&A Market Drivers
Let’s start with why this year may be a record. First off, record cash. How much? We’re sitting there with around $4 trillion, about a trillion of which is in the pockets of the strategic buyers, some of whom are on with us today, and about $3 trillion of it is in the pockets of the financial buyers, the PE firms. And then there are the sovereign funds on the sidelines, and we’ll hear about that. There is a strategic imperative to buy: buy or die. We have these disruptive trends, you’re either part of the future or you will be run over by the competition.
We have record financial markets, the Dow flirting with a new high. When people are positive—well think about it, when you’re positive because things are going well, what do you do? You go out and spend money. If these companies are positive, what are they going to do? Their CEOs are going to go out and spend money in the form of making acquisitions. There are a lot more buyers out there. Take a look today at this report, which summarizes the year and see how many buyers you don’t recognize. Lots of new buyers.
One of the things that will be fueling this, in addition to the cash, we still have record low debt. The debt is used by the strategics, who have loaded up on debt at almost no interest rates, and the PE firms still do a lot of their transactions leveraging with debt.
The last factor we’ve added with the new administration is repatriation of US tech funds. Of that trillion dollars I’ve mentioned, most of it is outside the US and most of the funds even for the non-tech buyers is outside the US for various reasons. When that is repatriated, I don’t think they’ll want to be buying back stock or dividends. We think they’re going to be buying companies, and we’re all for that.
Now before we take a look at our predictions for 2017, let’s revisit our predictions for 2017. How’d we do, Tim?
2016 Predictions Scorecard & 2017 Predictions
We did pretty well. We missed on a few of them. Food ordering did not move into gaming. Apple went the AI route rather than to IoT or Enterprise, though they could still jump into either one of those from AI and we’ll see if they do. And meanwhile, Indian product M&A stayed stable.
We got some right. PE didn’t buy any of the companies that we mentioned specifically, but they did make two Internet megadeals, which is unheard of. These are old line PE firms buying Allegro, the eBay of Poland, and Hotelbets.com.
We didn’t see consumer traction in gaming, which we predicted, and there wasn’t much in sports or viral videos, but there was some. It was certainly more than gaming, especially at that entry-level space with Samsung Gear, Google Cardboard, that sort of thing, so we gave ourselves partial credited for both of those.
But there were three that we really did nail. Drone software M&A really did kick off. The Redbird analytics deal is a landmark in that space and we’ll address that a bit more later. And we think we’ll see more of that in the year to come.
We saw Ctrip acquire Skyscanner out of Scotland in a megadeal, and that’s definitely hits on Internet giants buying European travel sites.
And then the one where we would give ourselves an 11 if we could, vehicles, not houses or cities, really became the central hub of IoT, and they did drive a global M&A wave with multiple megadeals.
We’ll be talking a lot more about that today as well.
But what about this year?
Well, first, we think that Amazon is going to make an unusual acquisition. This is an easy one, and privately we make this prediction all the time. Privately we say that there’s nothing Amazon could buy that would surprise us, so we figured this year we’d make it official.
We think we’ll see GE extend its shopping spree, and we’ll dig more into that later. We think they’re going to break into the top three as they reinvent themselves into a tech company.
We’ll see more block chain acquisitions by traditional fintech and finance firms.
The repatriation that Bruce mentioned, we think that that will finally lead to some unicorn acquisitions.
Sovereign funds: Bruce mentioned these as well, we think these guys will cut out the middle man and step into a more direct role, at least some of them, maybe the Saudis or the Norwegians, we’ll see what happens.
We will see major AI players move into data security.
And we will see more industrial deals like GE and Siemens as well, doing Iot, SDM and similar deals. A lot more of these non-tech buyers will keep moving in.
We will see at least one, probably more, tech firms move into the connected car space. Many have already, but we think more will move in this year as well.
Those are some great predictions.
2017 Top Ten Disruptive Tech Trends
Now we’re going to our Top Ten Technology Trends for 2017, including some new sectors. Tim, I know you led the global group that came up with this. Thank you to the Global Technology Council for their contributions from around the world in every market.
Tim, tell us about some of the new titling and some of the new markets.
We reorganized our trends to really describe what’s happening now.
Core is one group, these are the deep tech firms that are the basis of a lot of the disruption that is happening right now.
Contour is what is happening at the edges; the implications and applications of those core technologies in specific problem sets and areas and the results of them in certain ways.
Our new ones then are visual intelligence systems, data science monetization, and focused IT services, and I’m looking forward to what the guys have to say about those.
And they have a lot to say! Let’s start off with Allan Wilson in Austin, talking about AI enablement.
AIs need data, ways to acquire that data, and tasks to attack, based on learning from that data—then iterating with feedback to improve even more. When we introduced this trend over a year ago, we predicted the flood of AI-related deals that followed. And you don’t have to be a deep tech company to benefit. This continuing thirst for AI-driven applications drove M&A in 2016—not just for core AI capability, but around big data and analytics.
Examples span nearly all application areas. In Business Intelligence, Salesforce acquired BeyondCore for $110M. Oracle acquired Crosswise for $50M to enhance mobile tracking for advertising. In retail forecasting, Infor spent $125M on Predictix, while LinkedIn bought AI-powered recruitment engine Connectifier for $105M. IBM’s Watson, which kicked off this trend, capped its healthcare buying spree by adding “200 million lives” worth of data via Truven, for $2.6B.
All technology companies should consider the role of AI in their offerings, possibly building AI tools into your solutions—but your optimal value may come from providing data, framework or feedback to enable an existing artificial intelligence.
Great stuff. Two of the biggest buyers in this sector, Salesforce and IBM, will be on with us later, and I can’t wait to hear from them.
Now let’s hear from Rob Schram on IoT.
The complex Internet of Things ecosphere continues to coalesce. While more players are still emerging, networks of alliances are forming to achieve more unified environments, providing accelerated growth opportunities for the IoT software community.
In particular, watch the crystallization around Google’s Android Things, GE’s Predix, PTC’s ThingWorx and Siemens’ MindSphere—particularly after its acquisition of Mentor Graphics—while cloud providers Amazon and Microsoft spread their bets around the table.
Major industrial firms emerged as top buyers last year, hungry for deals in every imaginable area of IoT software, in particular, security, analytics, connectivity, controls, data storage and application development. In addition to Siemens’ $4.5B acquisition of Mentor Graphics, 5 out of GE’s 7 IoT acquisitions in 2016 were SaaS plays, including nearly $1B spent on the ServiceMax field service management platform.
With the compression of IoT tech cycles, we anticipate consolidation on both the platform and hardware fronts this year. Though much of the technology is still nascent, the buyers are active and it’s a great time to test the market.
Indeed, a great time to test the market.
Now to Dan Bernstein, fresh from a trip Down Under, where he sold a company to Rupert Murdoch. His topic is visual intelligence systems, one of the three new ones.
Visual Intelligence Systems
Visual intelligence lies at the intersection of three multi-industry disrupting trends, artificial intelligence, computer vision and analytics. Just last month Intel confirmed taking a 15 percent stake in HERE, the mapping and location services company owned by a consortium of car manufacturers, which are evolving into software companies as they collect, process and act upon not only street and location data, but also object, vehicle, human, and animal behavior.
Billions of images stored on eBay can now be intelligently analyzed and classified with the help of Corrigon, an image recognition and visual search technology company. Netgear’s acquisition of Placemeter integrates proprietary computer vision algorithms into its Arlo Smart Home security product. There is no end in sight for visual intelligence, as it will transform nearly every sector. For example, new software technologies built into cameras will find their way to drones, which collect and monitor complex data regarding the health of crops autonomously.
Facial recognition is taking huge leaps forward beyond biometrics, so that multiple faces can now be quickly ascertained from a single image and cross-referenced with law enforcement databases, making vulnerable and high trafficked public spaces more secure.
Indeed, a technology that will affect all of us.
Now to the Midwest to hear from Rob Griggs on digital currency flow.
Digital Currency Flow
Digital currency flow is powering massive opportunity for strategic acquisition in 2017, as the urgency of consumer expectations, for payment to be mobile, personalized, customizable and accessible 24/7 drives M&A.
In addition to payments technology, anything facilitating automation and improved efficiency of banking, insurance, POS, wealth management, robo-advisors, or lending, are all areas for M&A. The technology will greatly impact the front, middle and back office of every brokerage, bank, insurance company, healthcare exchange and all things commerce driven.
Credit card companies are themselves becoming technology companies, as EMV chips finally come online in the US and the Internet of Things breaks open entirely new markets, driving deals up and down the payment chain. Meanwhile, the threat and opportunity that distributed ledger technology represents looms over the global commerce system, and staid financial players watched it move toward reality last year, with Broadridge and Rakuten making the first true strategic blockchain-driven acquisitions.
Will the coming disruption reach Netflix/Blockbuster levels, or will current fintech companies make the leap? The tech firms acquired this year will help determine the course of an industry.
Now to another new sector, data science monetization and we’ll hear from Jim Perkins in Phoenix. Jim is not only one of the world experts on Chinese buyers, but also in data science monetization. Jim?
Data Science Monetization
Data science monetization is revolutionizing all disciplines of technology after emerging in the games industry. Asian game studios applied it first to perfect free-to-play models, monitoring everything consumers did, liked, played, and paid for. Developers worldwide extended this to all sorts of applications, analyzing customer behavior to identify, exploit and optimize monetization opportunities.
This has led to a flurry of M&A for both analytics firms (like Games Analytics acquired by China’s Mobvista) and software firms, especially data-driven game companies (witness data-driven Corum clients JAGEX, acquired by Zhongji for its successful RuneScape franchise, and Digital Extremes, with its free-to-play hit Warframe, acquired by Perfect World and Leyou).
Beyond games, video ads are benefiting from this trend, with Facebook a key beneficiary thanks to its earlier acquisition of LiveRail. Adobe’s half-billion acquisition of TubeMogul in November suggests similar aims.
Any SaaS provider tracking successful and unsuccessful strategies within an ecosystem can provide this monetization capability to customers, always seeking the shortest distance between data and dollars. From an M&A perspective, the better the data is utilized, the more attractive and valuable a company.
From Phoenix east to New York and online exchanges with Dr. Ivan Ruzic.
Online exchanges continue to present lucrative opportunities to shape relationships between providers and consumers of products, services and information.
Online marketplaces are the best known, pushing e-commerce to nearly $2 trillion in 2016, and the urgency of the opportunity has driven consolidation. Established players have aggressively sought new avenues for growth through M&A.
Both established exchanges and enabling tech are in demand--eBay’s Stubhub acquired both Ticketbis, a Latin American marketplace and TicketUtils ticket broker software. We also see new buyers active, with Richie Brothers Auctions acquiring IronPlanet, essentially an eBay for heavy construction, and Polish auction site Allegro acquired by PE for $3.2B.
The need for novel technology will remain a significant driver of M&A activity in this sector. Key disruptive opportunities include personalization and social media integration, the application of machine learning/AI for security and efficiency, financial disintermediation (possibly via blockchain) and supply chain enhancements from on-demand carriers to drones.
These principles apply across sectors, as companies with technology that successfully connects sellers and buyers in unique ways will continue to be highly sought after.
Thank you, Dr. Ruzic. Wonderful stuff.
Now let’s go further east to London and hear from Peter Prince on omni-channel sales.
All businesses, whether B2B or B2C, are seeking to bring their persuasion and purchasing as close to the customer as possible. This trend is accelerating personalization, analytics and engagement to make the customer experience more seamless—available on every device, in every format, at the opportune moment.
Emerging technology continues to disrupt how banks, retailers and others interact with consumers at the point of sale. As many formerly isolated systems into conflict and cooperation, the urgency is spurring M&A, from the card networks that have become more than the glue that holds the system together, to the refrigerators where we can now buy our groceries. More overlap will drive even greater consolidation.
This will build on the many deals already seen in this space. On the B2C side, Demandware was acquired by Salesforce for $2.8B – linking e-commerce personalization across channels to CRM.
On the B2B side, Microsoft acquired the ultimate Omni-channel sales tool—LinkedIn—for $26B. There’s more to come, as technology meets the challenge of bringing persuasion and transaction directly to the buyer.
Indeed, more to come. From England to Canada and one of the biggest markets of all,
connected health, and David Levine.
Consumers are creating and curating their own health data, seeking closer connection to health services and records. This demand for improved interoperability between previously siloed data for population health analytics, genomics, and predictive and personalized medicine, will continue to drive M&A.
In addition to these social changes, demographic changes continue to make health care questions more pressing, while regulatory barriers appear to be softening—from the 21st Century Cures Act recently signed, to the next round of the US healthcare fight.
On the deal side, emphasizing the importance of connecting with patients, more money was spent on patient engagement solutions than on more typical EHR M&A, including EMMI, acquired by Wolter Kluwer for $175M, and HealthiestYou, acquired by TelaDoc for $155M. The largest check came from Swedish PE EQT, acquiring patient survey giant Press Ganey for $2.3B.
And while Fitbit struggled in the public market, Apple’s new Carekit offering and Nokia’s acquisition of Withings indicate significant opportunities for truly connected health via wearables, mobile and more.
M&A will continue to be core to healthcare’s digital transformation into patient-centric, connected care.
Yes, indeed, digital transformation, thanks Dave.
Now to one of our new markets, focused IT and we’ll hear from Steve Jones in Salt Lake City.
Focused IT Services
Demand for IT Services firms focused on a particular platform or vertical industry is rising. Inefficiencies continue to grow in the ecosystems of large software installations, while enterprise solutions have evolved to modular or object-oriented, which enable customers to demand more adaptable implementations. Meanwhile, aligning business processes and best practices with new systems has become fundamental to business success.
We’ve been watching IT Services valuations steadily increase over the last few years, and EBITDA multiples have nearly doubled since 2012. These deals are clustering around vertical domains such as CRM, supply chain, and HR. In 2016, CRM deals exceeded 16 acquisitions of Salesforce-based services companies, nearly three times the previous year.
Services firms with a specific focus coupled with comprehensive capabilities will be attractive targets for partnerships and acquisitions in the coming year. Targets with expertise in custom app integration, core development, and technology expertise must also provide strategic consulting services with specific deep domain expertise and knowledge. This powerful combination will not only capture market share but increase valuations at this uniquely advantageous moment in time.
Thank you. This is one of the most active markets. We’re seeing renewed interest and interest from buyers we’ve never seen out of Asia, North America, and Europe.
Now for our last market, and you can’t have a top ten list without security, so let’s hear from our managing director in Amsterdam, Jon Scott.
Major data breaches continue to harm consumers, governments and enterprises, helping make Data Security one of the hottest trends in tech M&A. Today’s big players can’t keep up with the pace of innovation but they can fill product gaps and acquire innovative teams. We see companies in predictive threat intelligence, multi-factor authentication, and in highly secured cloud platforms for short-term sharing of data as particularly attractive targets. Further, by 2020 there will be 80 billion connected IOT devices generating huge volumes of data that will need to be analyzed to protect these devices and their networks. Expect more major breaches and significant new vulnerabilities uncovered this year. Large security companies will continue to be highly acquisitive, including Symantec, which reenergized its security product strategy by selling its Veritas division last year while acquiring Blue Coat for $4.7B and Lifelock for $2.3B. With big moves like this, security buyers are all looking for tuck-ins to fill gaps, too.
There will be lots of tuck-ins, and we’ll hear about more of them later.
Now, why are these disruptive trends important to you if you are a smaller company? If you map to these trends, the buyers will pick you up just to get ahead of the curve. We have two companies right now in LOI under $2M right now, just because they map to these disruptive trends.
Clouds on the Horizon?
The next topic here are the clouds on the horizon. One of those is geopolitical disruption. I don’t know that I need to explain that. There are a lot of concerns around the world, which can affect the markets, which can affect M&A.
Next there is currency crisis. We’re always seeing currencies fluctuate, sometimes radically, so that can be an investment opportunity. In terms of market, that can affect M&A. It can make some things very cheap or very expensive.
One that we have added here is capital outflow restrictions in China. The Chinese buyers are some of the biggest tech companies in the world, and they are some of the biggest acquirers, spending big dollars. If they have their outflow restricted where they can’t spend the money because the government has shut down exiting cash, then they will be pulled out of the buying occasion. That will affect the M&A markets, at least in valuations.
Next is inflation, rising interest rates. We are always seeing that. The IMF just said the US will increase by a half-percent and we are already seeing inflation and rising interest rates reflectd in the bond market. Now, remember, if we have inflation and rising interest rates, guess what happens to markets? They go down and if the stock markets adjust, the M&A adjusts. And, of course M&A cycles come and go.
With that, let’s go to our global annual Corum research report with Elon Gasper, Amber Stoner, Amanda Tallman, Yasmin Khoadmoradi and Thomas Wright. Elon?
Corum Research Report: 2016 Review
Thanks, Bruce. We begin with a look back at the public markets where, after a short correction early last year reset some overextended SaaS valuations, the major indices rebounded, capped by a post-election rally, hitting many new highs by mid-December. The Dow, NASDAQ, S&P Tech rose a net 13%, 8%, and 5% respectively as this long Bull market made it into its 7th year, even reaching some further records during the first couple weeks of 2017. And with a sober acknowledgement of the risks that Bruce mentioned, on balance we see the underlying trends and momentum continuing to support tech M&A ahead with highly favorable conditions for sellers.
Looking back now on 2016 and unpacking our Corum Index, its market metrics spotlighted a record year of megadeals—which we’ll expand on separately later—as buyers focused on opportunities to “move the needle” and keep up with the fierce pace of change. Though that and supply issues held back the overall deal numbers, it set up 2017 to produce a megadeal market echo with a wave of demand for bolt-on, tuck-in and competitive response followup acquisitions to round out these big transactions: filling gaps, patching holes, and shaking out even more new buyers.
Our pipeline metered record private equity deal flow, reflecting the great shift there away from the PE industry’s roots in old-line financial engineering toward tech-based strategic maneuver in technology; we spotted that trend early, alerted our audience last year and before, and are pleased to see other reports catching up now.
Other attributes were stable; so now let’s check our leaderboards, starting with top strategic acquirers. Amanda?
Our list welcomed 5 first-timers to its rank, riding a wave of trend-driven deals. An increased importance placed on IoT and AI drove a number of acquisitions in 2016 and will likely continue to do so this year.
J2 Global broke through as the top strategic acquirer with 24 acquisitions, namely across its business cloud services and digital media arms, with an emphasis on security. Alphabet followed next with 21 deals, largely focused on mobility; with most through traditional Google deals and a couple by the parent company.
A number of top acquirers were driven by an increased focus on IT Services. In addition to J2 Global, Accenture ranked third with 20 deals and other service oriented companies also made the list, including Dentsu, Deloitte and WPP.
General Electric backed up its rebranding with 11 tech acquisitions, doing deals like a digital tech giant.
Oracle followed behind, more than quadrupling its 2015 total with 9 acquisitions, including the landmark Netsuite deal.
In contrast, Microsoft saw the largest drop in deal volume, owing to the attention taken by its Linkedin acquisition.
Who were the top financial acquirers, Amber?
Among private equity buyers, Vista remains in the top spot, with KKR and Thoma Bravo moving into the top three, unseating Insight and ABRY, pushing them into the next three to join TA Associates. GTCR and Apax returned to the chart after a year’s absence with EQT and HIG Capital making the list for the first time. We’ll examine many of these deals with further analysis next month in part two of this annual report.
Last year’s record 76 megadeals totaled $323B, with Vertical leading the pack at 19 deals followed closely by the value leader Infrastructure with 17. We’ll highlight some deals by sector, starting with Vertical, Yasmin?
Verizon made inroads into connected cars, paying $2.4B for Dublin-based vehicle tracking provider Fleetmatics, solidifying capabilities in mobile resource management and telematics.
In the Infrastructure sector, England-based chip designer and development tools maker ARM was acquired by SoftBank for over $32 billion to tap into the IoT market.
The Horizontal sector saw 15 megadeals. Project management and ERP provider Deltek found a new home with Roper Technologies for $2.8B.
Among the 10 deals in the Internet sector, Microsoft made waves when it dropped $26 billion for social platform LinkedIn in its largest transaction yet.
Avnet’s IT Solutions Group was picked up by Tech Data for $2.6B to help it pivot into data center-focused products and extend its reach in the Asian market.
Consumer’s six megadeals were primarily led by Chinese buyers, including Tencent, which spent $2.7B for multi-platform music streaming service China Music.
The geographic balance in deals overall remained steady. North American deals again outnumbered the rest of the world. Thomas, what sectors were driving deals there?
Foreign buyers dominated the AdTech sector, as New York’s retail exchange HookLogic was picked up by Paris-based performance marketing firm Criteo for $250M.
In Canada, demand-side advertising platform AdGear was bought by Samsung to bulk up its Smart TV services.
In Latin America, Brazilian truck fleet management provider Cielo Telecom was acquired by Israel-based Pointer Telocation for $6.5M to extend its penetration into South America.
The ticketing space has also seen a flurry of deals, as Peruvian online ticketer Cinepapaya was bought by Comcast-owned Fandango to extend its presence in Latin America.
Corum’s 2016 prediction of drone M&A came to fruition in Western Europe as Intel grabbed Germany-based commercial-use drone manufacturer Ascending to bulk up its RealSense imaging platform. Paris-based Redbird, specializing in drone analytics for construction, was snatched up by drone services giant Airware to combine drone services with geospatial analytics power.
Nordic transactions were up in 2016, including the Norwegian windfarm software developer BazeField, which was nabbed by China’s smart energy services vendor Envision.
In Eastern Europe, deal flow remained steady with the cloud consolidating as OpenStack contributor Mirantis closed Prague-based TCP.
In Asia, acquisitions by Chinese buyers continued to rise from 2015 as Ctrip bought online travel booking company Traveling Bestone. In India, Opex was landed by AWS partner REAN Cloud with an aim of refocusing on application-centric DevOps methodologies.
In Australia, location-based fleet management provider Securatrak was acquired by Ontario-based Fleet Complete.
And finally in the Middle East, Israeli M&A stayed strong as Arilou, a cyber security provider for connected cars, was snapped up by NNG, the Budapest-based company behind the iGO navigation app.
Horizontal Software Valuation Metrics
Looking at our market sectors’ performance in a three-year span, sales multiples nearly retain their order from a year ago, with the exception of Infrastructure’s drop below Internet and Horizontal, though Infrastructure and Horizontal metrics are converging, driven by related growth factors. Internet EBITDA multiples retain the top spot, moving more in line with the other markets; Infrastructure moves back above Consumer after dropping in late 2015 and IT Services continues its steady climb upward.
Diving into our six markets, we’ll start with Horizontal where sales and EBITDA metrics fluctuated throughout the year, ending the year higher than they began it.
BI and ERP sales multiples converged last year, with ERP coming out on top to end 2016, while SCM and HR sales multiples continue to set themselves apart from the rest in both sales and EBITDA multiples.
In addition to its sales multiple increase, ERP was also among the horizontal subsectors to see an increase in EBITDA multiples.
The AI Enablement trend made quite an impact on deal activity in the horizontal sector last year and we expect that trend to continue in 2017.
eBay joined the AI community, snapping up Expertmaker in an attempt to enrich its marketplace platform with machine learning, followed by Israeli visual search specialist Corrigon. And Salesforce paid nearly $33M for deep learning startup MetaMind.
Analytics was also sought after for M&A as part of the white-hot AI enablement trend. Corum client Lingospot was picked up by Piksel to improve its video metadata discovery. Israel’s device-mapping ad startup Crosswise was acquired by Oracle for an estimated $50M to integrate its tech into the Oracle Data Cloud. Vibrant Data was bought by Rakuten-owned Slice Technologies to expand its multidimensional data extraction offerings. And Viv Labs, a natural language processing startup from the creators of Siri, was purchased by Samsung to enrich the tech giant’s AI-based open ecosystem.
Predictive analytics deals included retail-demand forecaster Predictix being acquired by Infor for $125M to complement its enterprise cloud suite. And Preact, a subscription forecast analytics vendor, was bought by Spotify in an example of a consumer-focused buyer picking up a horizontal seller.
Salesforce spent $110M for enterprise analytics SaaS provider BeyondCore to amplify the Salesforce Analytics Cloud with AI following its $2.8B acquisition of e-commerce SaaS vendor Demandware.
In a Visual Intelligence Systems deal, French AI-based computer vision provider Spikenet Technology was purchased by Brainchip for its neural network software utilized in public security and gaming.
Finally, in the SCM sector, Appterra was sold to Descartes for $6M to better standardize buy and sell-side processes. And e-procurement vendor Verian was bought by Finland’s Basware for $36M to complement its existing e-procurement capabilities.
How did the Vertical sector perform last year?
Vertical Software Valuation Metrics
Valuations ended the year on slightly higher levels than a year ago, showing robust growth dynamics all year long. Automotive, Government and Energy and Environment saw higher sales multiples than a year ago, while there was strong M&A activity across the sector, driven again by trends like AI technologies, predictive analytics, and the internet of things.
The ongoing evolution of connected car technologies has continued to spur interest in established industry players and newcomers alike, including Ford, which nabbed Israeli startup SAIPS to implement its widely-applicable deep learning algorithms into its self-driving car strategy. Russian computer vision provider Itseez was picked up by Intel to help the chip maker focus on autonomous vehicles. And just last month, Seattle-based Surround.io was purchased by its neighbor UIEvolution for its machine learning infrastructure that helps connected cars share more data with customers and manufacturers. And we can’t leave out Uber, which spent nearly $700 million for Otto and its retrofit-kits to create self-driving trucks.
In the A/E/C subsector, construction management SaaS vendor Textura was snapped up by Oracle for over $660M and 7x sales multiple to build up Oracle’s Primavera project management unit. Textura itself previously acquired Corum client Planswift. Nebraska-based Design Data, was sold to Germany’s Nemetschek for 46-million, adding its steel-focused BIM solutions to Nemetschek’s capabilities in concrete. Mtelligence was acquired by AspenTech for over $37M to take its AI-driven predictive maintenance stack into the industrial asset management space. And Cincinnati’s construction data network provider, ConstructConnect, was picked up Roper Technologies.
The healthcare M&A market remained active, driven by our Connected Health Trend, as Press Ganey was taken private by Swedish PE EQT for over $2B at nearly 7x sales. Emmi, a patient engagement software provider, was picked up by Wolters Kluwer for $170M, adding patient-focused tools to its clinical suite. And HealthiestYou was acquired by Teladoc for over $150M at 15x revenue to extend its telemedicine services.
Thomas, what’s the story with IT Services?
IT Services Software Valuation Metrics
Developed market valuations continued their years-long ascent, driven by the focused IT services trend. Emerging markets continued their convergence towards the developed, but still remained significantly higher.
Accenture, one of our top three acquirers, collected 20 focused IT service deals: from system integrators to security to an SCM consultancy, with one acquisition in Oceania, twelve in Europe, one in the middle East, five in North America and one in Asia. Accenture diversified across most of the major markets.
Security also invaded the rest of the IT sector, with Aquilent, a cloud service provider for the federal government, snapped up by Booz Allen for $250M. Siege, and its robust portfolio of security products, was rolled up into Nehemiah’s portfolio. And Pasadena-based Advancive was bought by Optiv to bolster its identity and access management practice.
With the Internet of Things maturing, traditional firms looked to inorganic growth to stay current. IoT specialists Infrastructure were acquired by Zones while Extensys sold its IoT division to the industry giant CompuCom.
M&A also created innovative IoT partnerships such as Portland’s Rivetry joining forces with Bluetooth module maker Rigado to unlock more advanced IoT capabilities.
Consumer Software Valuation Metrics
Valuations in the Consumer sector declined slightly following encouraging metrics through the third quarter. However, casual gaming remained stable in both sales and EBITDA valuations.
China continued to dominate gaming M&A across the globe. Corum client Jagex, publisher of classic MMO Runescape, was sold to Zhongji Holding, another example of a non-tech buyer diversifying into gaming. Tencent bought Finland’s Supercell for $8.5B in its largest-ever acquisition.
In the wagering space, Quebec-based DEQ Systems, a global supplier of table games to casinos, was acquired by Scientific Games for over $20M. London-based OpenBet was bought by NYX Gaming for over $250M to help gain a share of the regulated markets.
Wearables also saw a number of deals in 2016. Among them was ASICS acquisition of FitnessKeeper for $85 million, as they race to catch up with Adidas, Nike, and particularly UnderArmor. Ireland-based PlayerTek, a provider of athlete tracking systems was acquired for $2.7M by Australia’s Catapult. And Nokia found its own health and activity tracker with the purchase of Withings for $190M.
Facial animation and analysis was a particular focus for Facebook, which snapped up Masquerade and FacioMetrics. And through Oculus, it added The Eye Tribe, a developer of sensor-based eye tracking systems.
In the world of virtual reality, VOKE was bought by Intel with hopes to enrich its sports content, and VR studio Surreal was acquired by media company STX with recent funding from Tencent.
Finally, travel sites reached out of the internet sector for consumer apps, with Tripadvisor buying Citymaps and Expedia acquiring photo sharing startup Trover.
What else happened in the Internet market?
Internet Software Valuation Metrics
Internet sector valuations ended the year down after months of robust performance, though Travel and Leisure ended the year with heftier sales multiples than it started with.
English cruise booking site Cruise.co.uk was bought out by Bridgepoint Capital for over $69M, hoping to take advantage of the UK’s ocean cruise market, the second largest globally. India’s largest online travel agent Yatra was sold to Terrapin for $218M to build on its recent IPO and expand internationally. French hotel group Accor entered the private rental market, paying $170M for Onefinestay out of London.
We also saw high demand for disruption in ticketing tech. Spanish platform Ticketbis was grabbed by eBay’s StubHub for an estimated $166M to increase its footprint in Latin America and Europe. Vivid Seats was purchased by our top acquirer Vista Equity to improve its positioning among secondary ticket exchange vendors. And Wantickets was wrapped up by LiveXLive which seeks a foothold in digital music ticketing.
Horse-racing sites came out of the gate strong as Corum client and Australia's largest digital racing publisher Punters was nabbed by News Corp to expand its offerings for the Australian racing community. And Racing Post, a horse-betting publisher from London, was acquired by Exponent Private Equity.
Consolidation in the food delivery space continued into 2016, capped off by Foodpanda’s sale to DeliveryHero in an increasingly winner-take-all market. Earlier deals took place across Russia, China, Canada and the UK.
Sales multiples in the Infrastructure sector experienced slight fluctuations, remaining fairly stable overall, while EBITDA multiples jumped in Q4. Storage and Hosting saw gains in both sales and EBITDA multiples, while Endpoint had increased sales multiples and Security experienced a bump in EBITDA multiples.
Data Security stood at the forefront of M&A for both industry incumbents and buyers seeking to protect an established technology stack. FireEye paid $200M, 5x sales, for cybersecurity firm ISight Partners, and followed that up by spending $20M more for Invotas to complement its threat management platform with security automation.
Proofpoint snatched up Return Path’s e-mail fraud protection unit for $18M to strengthen its portfolio of threat protection products.
And Blue Coat, founded by former Corum client Joe Pruskowski, was sold to Symantec for $4.7B, nearly 8x revenue, to complement its on-premise products.
Visual Intelligence Systems made an impact as well, with machine vision specialist Cognex buying two 3D vision firms in Europe—EnShape and AQSense—for more than $10M combined, underlining the rising demand for solid 3D tech across a range of traditional markets.
AI and AI Enablement were prevalent in the infrastructure sector in 2016. Apple fortified its machine learning infrastructure by acquiring Turi for $200M while also picking up facial recognition startup Emotient and data-mining platform Tuplejump, Apple’s first deal in India.
IoT Software drove multiple acquisitions last year. Microsoft, bought Italian startup Solair to boost its Azure IoT suite. SAP fueled even more consolidation in the space by acquiring another Italian firm PLAT.ONE, to build IoT interoperability into its Hana Cloud. With a view to IoT security, Israel-based Dojo-Labs was picked up by anti-virus company BullGuard. And Bluvision, specializing in Bluetooth-Low-Energy tracking solutions, was nabbed by HID to dive deeper into enterprise IoT.
The cloud management space has been active as well with Cisco spending $260M for cloud application management firm CliQr; and ServiceNow paying $15M for ITapp to plug into hybrid cloud environments.
Upheaval in programmatic communication led to Google buying the API management company Apigee for $625M, 6.5x revenue, to help the search giant catch up with rivals Microsoft and Amazon. API management company 3Scale was picked up by Red Hat for $29M, over 7x revenue, to amplify the API economy throughout its product stack.
And striking the first 2017 megadeal—it’s our friends at Gartner, spending two and half billion for corporate performance tech specialist CEB. We’ll cover that transaction and much more next month, in part 2 of our annual report. Back to you, Bruce.
That’s great, getting started off with a bang there. Next month is with our PE panel. You won’t want to miss that. Thanks to our research team.
Now let’s move to our panel of luminaries. You’ve been seeing some of the deals that they have been doing, starting with Salesforce and Peter Coffee.
Hi. It’s great to be with you again this year. I can’t help but notice that we are making our predictions the day before the entire country will be confronting the difficulty of making year-ahead predictions. What happens tomorrow on the steps of the US Capitol and what happened in June with the Brexit vote in the UK are both really powerful reminders that the world follows a course guided at least as much by people’s wants and fears as by what technology enables. For that reason I’m going to make a real effort this year to focus on fundamentals, not second order effect.
The ten trends discussed here today are well-founded predictions and people will do well to rely on them, but I would like to go one level further down the rabbit hole and talk about the reasons those ten things will happen.
Every one of those ten trends is enabled by massive 24/7 pervasive and increasingly personal connection. AI is becoming more useful because machine learning is being fed more real data about situations and behaviors. Digital currencies and the distributed ledgers that make them useful depend on a transformed model in which a shared public truth can be as well secured as a private, isolated truth. Online exchanges like Uber only work because we enjoy such friction-free capability to add and remove elements from shared pools of resources.
The bets I’m going to be urging people to make are:
1. Bets on velocity. Things that used to take 3-5 years will now be happening on a time scale of only one or two years. Whatever cycle you have been using to evaluate, test and deploy new technology needs to be drastically compressed or even your accurate predictions will not keep you ahead of the curve.
2. This bet is on looking for ways to deliver services that transcend physical products. If you look at the piece of Apple that delivers only services like apps in the iTunes store, that non-hardware business has a global revenue stream the size of Coca-Cola and Apple’s cut off the top is as large a business as Starbuck’s. I would put it simply, for those who remember Alec Baldwin’s iconic monologue in Glengarry Glen Ross, it’s no longer “Always Be Closing,” it is “Aim to Be Connecting.”
I remember that speech! The one word here, Peter, that I like, is velocity. We are seeing things move much faster. With 200 conferences a year, we see more companies than anyone, and I had two requests just this morning from major strategic buyers and financial buyers: “What have you got?” They’re hungry for deals.
Now let’s hear from Dr. Karl Popp in Germany, who has joined us for a number of events before.
Hello and thank you for having me. I would like to talk about SAP’s strategic focus and how to match it to the Corum top ten technology trends.
As you may know, SAP’s strategy is to make the world run better and improve people’s lives. This already takes me to the first topic: AI enablement.
There are many opportunities for AI combined with enterprise applications, so SAP has massively invested organically to create SAP CLEA (computer learning for enterprise applications) as SAP’s key offering in the AI enablement space, where digital assistants and recommendation functionalities AI combined with analytics, etc.
AI is also an important part of the next topic, I think, IoT software. SAP has committed to invest €2 billion in the IoT software space, especially IoT application, and SAP has also acquired two companies in this space in the last year. We have created a brand called SAP Leonado, which consists of all applications, acquisitions, and the IoT platform. We think we can make a huge difference by providing the combination of technical platform and business applications.
In digital currency flow, we are investing organically in numerous applications of Bitcoin technology in a ledger-type environment for finance, but also for other applications. Stay tuned for some announcements this year.
My next topic is online exchanges. This is an ongoing strategic focus area. I mentioned it last year and it remains the case that in SAP Business Networks, where we have Ariba and Conquer and other offerings, that’s the largest business network on earth. The revenue that is basically pumped through that network is beyond $800B and is larger than Amazon, eBay and Alibaba combined.
For the last topic, omnichannel sales, this has already been a strategic topic for quite some time at SAP. We made a major move acquiring a company called Hybris in 2013. This is a business that is doing very well and has provided omnichannel sales capability. We just recently acquired Abakus company, which provides us with great capabilities in cross-channel marketing measurement and optimization, basically we use game theory there to determine if you do marketing, advertising, etc, which channels were successful and in which way, and it can automatically redistributed the efforts on different channels for maximum output of marketing campaigns.
Thank you, Dr. Popp. As he said, stay tuned. SAP recently stepped up dramatically and he mentioned that ecosystem inside it which includes Concur, my neighbor’s company, Steve Singh, which sold for $8.3B, they’re also a former client, so stay turned for more from SAP.
Now we’ll hear from one of the world’s leading entrepreneurs and futurists, our old friend Reese Jones. Reese?
This is Reese, thanks for having me back. I’m going to talk about four things. AI, sensors, speech, and cyber warfare.
· Kevin Kelly last year come out with a book called Inevitable, which generally concludes that if you add AI or machine learning to almost anything, it makes it better, be that a door or a car, a phone or a hospital bed, AI is an enhancement to add new value to old product categories.
· Sensors are becoming common in many products, such as vision and hearing, and other types of motion sensors. Percy Liang, the Stanford faculty member who just joined Google had the interesting observation that the Cambrian explosion in biological evolution about a half-billion years ago coincided with vision and other senses evolving in organisms, which created a massive diversity of new, differentiated species who could see and sense their environment differently, which created new predators and prey and so forth. This seems to be happening to computer devices with sensors and abilities to sense their surroundings, and will create a great diversity of new possible products.
· Third is speech and language. With the paradigm of hands-free computing, where you interact with the computer verbally, for example your car, your home, and your phone. Language understanding needs to be in the cloud to some extent, with continuous updating of context to know who died or what election context there is. Jaron Lanier, the inventor of VR, who is now at Microsoft working on the speech problem points out that unless the body of data that the AI is recognizing from is continuously updated, it becomes out of date pretty quickly.
· Finally, on the topic of cyber warfare versus cyber defense, McAfee points out that we are living, for example, in a nuclear era, where we have weapons but no bomb shelters. There is very good technology for attacking other cyber systems, but very little in the way of defense. This is obviously a huge business opportunity.
No bomb shelters. I like that.
Lastly, we’ll go to IBM and Henry Hu. Henry, are you there?
Yes, I’m here. Thank you. I’m speaking live from headquarters in New York. I recently took over IBM’s relationship with the Corum Group, and I look forward working with your team.
When I attended similar conferences in the past, one key question asked is, “How can we receive tangible benefits, monetize any of those trends, and where is the money?”
My two cents is to help your company and your clients grow and succeed, I would suggest that you and your clients start experimenting on some of those trends, proving the concept and piloting it before broad adoption. Or, partner with us and join us to make a meaningful difference in the world. We continue to be open for opportunities to grow upon nearly all of the trends shared earlier.
I can use some real client examples from IBM to illustrate how a company or organization can benefit in two of the specific trends mentioned.
1. AI-enabled healthcare: The US department of Veteran Affairs announced a pilot program with IBM to help the VA’s oncologists treat 10,000 veterans with precision medicine and genomic analysis powered by IBM’s Watson cognitive computing system. A Watson-enabled oncology system recently saved a Japanese woman’s life by diagnosing she had a very rare form of leukemia that doctors were not aware of. It has rolled out to hospitals in the US, Canada, Japan, India, China, Thailand, etc, after being trained by some of the best oncologists in the world.
2. IoT applications: Siemens collects data from over 100,000 buildings to reduce energy usage, saving their clients over $140M annually. Our client Whirlpool is collaborating with us to connect thousands of home appliances to the Watson IoT platform. By deriving insights from the data, Whirlpool anticipates a 70% increase in customer service call time, a 50% reduction in warranty and parts costs, higher customer satisfaction, and new opportunities.
I can share more, but I will stop here for time’s sake, and I look forward to working with your team. Thank you for having us.
Thank you, Henry. We had one of the lead developers of Watson on a few years ago and he agreed with you that one of the biggest applications for Watson would be in the healthcare space.
We have a few minutes left for Q&A, so I’ll turn things over to Tim.
We’ll start with this question and I’ll put it up in the air for our guests. What are some of the key overlaps of these trends? Where are the key intersections? That’s always one of the interesting pieces. Let’s start with you, Peter. What are a couple of the intersections between the trends that you think are the most interesting to look at?
Well, as I think I indicated explicitly, the meta-trend is bandwidth and pervasiveness and ubiquity of connection and thinking about all the things that amplifies and everything else.
For example, AI. I’ve been in the AI community for 30 years. What makes AI genuinely different now is the degree to which learning engines can be embedded in environments in which human behavior is already taking place. Instead of having a non-scalable knowledge engineering process that tries to encode what people are aware of doing, we can instead use pattern recognition and prediction in machine learning to observe what they are doing and infer what they seem to be trying to do and have the tools we use become smarter through that exposure to how people are using them now. This is why I believe we genuinely do have a new AI epoch emerging. It’s not just that we’re going to do the same kind of dumb and non-scalable AI with higher speed at lower cost, it’s that we have a qualitatively different opportunity for the tools that we use to become more intelligent through the act of our using them. That is the overlap that I think is really exciting. The hardware capability, the connectivity that that enables, and the re-architecting of how the AI becomes intelligent with observation and learning instead of it being encoded and taught by human beings.
Reese, you have any thoughts on the intersection of trends?
I would agree with Peter that having everything connected is a really important factor in terms of applications of AI. The context of the connections is becoming multi-dimensional in that it’s not just the tech stream any more. We know the geolocation of a person, we know the weather there, we know their history, we know the many intentions of their task. An AI or machine learning system can learn from the past and look at the patterns and the context and then make decisions that are more useful to what is trying to be done.
If I could follow up on that, that’s a key point. Some of the things that were really hard to do in the first two generations of AI were hard to do because of the absence of context. We get so much context now as a byproduct of the fact that people are carrying or wearing the device, we know where they are, what they’re doing, maybe who they are with, so Reese nailed it there. There is so much more contextual information now, systems can show what seems like much more common sense when it is really just narrowing of the focus that they have to figure out because so much more context is available to do that.
That’s great. We have another question here on the AI topic, and I’m going to toss it to Henry for the buy side end and then maybe we can hear from Bruce for the Corum perspective.
What is the appetite for early stage AI acquisitions? Henry, how much can you tell us on that from the IBM perspective?
We continue to be interested if it is a unique technology that can compliment what Watson does. If there is a specific idea I can take a look at it. I have to tell you that this field is getting very competitive.
We’re certainly seeing that. Bruce, what are your thoughts on early stage proprietary technology?
We actually have a couple of clients now—as I mentioned—that are small and under LOI and one of them touches on this. We have a couple of companies which we would not have even seen traction on a few years ago that are, frankly, aqua-hires. They’re just teams that have domain expertise they have proven in the past. We’re seeing even those getting interest from both strategic buyers as well as the PE firms, but mostly from their portfolio companies as bolt-ons or tuck-ins, as I think Elon mentioned earlier.
That would be a fair characterization of what we’ve been doing at Salesforce, because the billion dollars in acquisitions that we’ve made in this area have largely been to assemble the team across those boundaries and then layer that into the existing product.
Great. From another angle, we mentioned travel earlier. Peter, do you have any thoughts on where the travel industry is headed from your Salesforce perspective?
We are actively engaging with a number of the hospitality chains to discuss the point that there is only so much you can do to make the hotel room a higher value experience, but what you can really do to make a particular hospitality provider distinguished from its competition is to say, “When you come to my city I’m going to note things about you, if you give me permission I’ll know when you have open time on your calendar, I’ll suggest restaurant opportunities and so on, and really turning the hotel room not into the product, but the nucleus of services that are highly personal and context-aware, that will make one hotel room different from another, because of that rich tapestry of services that I can weave around that, so much of which is based upon inferring desire and intention from behavior.
That touches on another question that I will toss to Reese. A lot of what we have been talking about here has significant privacy applications. We’re talking about consumer data in a lot of these instances. Do you foresee significant impact on these from new privacy laws in the US and Europe in particular?
Of course privacy is important, but we trade our privacy for services and benefits. There are many things that we think of as private, for example, our credit behavior, but our credit report is something we don’t even sign up for, we get it whether we like it or not. That is the record of our behavior and our likely future behavior and it has the downside in that it were left private, but it offers the upside in that we’re offered services and benefits that good behavior warrants. So people are concerned about privacy and governments are trying to regulate this, but technology is moving much faster than the regulation.
I think that lines up with what we’re seeing here.
Bruce, a question here: “How are valuations shaping up looking at recurring revenues versus one-time revenues?”
Obviously the SaaS model is the higher multiple, we saw that a few years ago with the sales of Concur and generally these are more valuable companies, although we saw SaaS gate last year where the valuations dropped down dramatically. But still there is a premium. One of the first questions buyers ask is how much of your revenue is recurring?
Here’s another question. Noting that we don’t have AR or VR as one of our top trends and asking if we think it is overhyped or if we think it will get there in 2018. Personally I’m pretty bearish on VR, I think there are a lot of logistical issues that are really going to prevent it from hitting the mainstream in the near future, but I’d love to hear our panelists’ thoughts. Henry, IBM runs computers that make VR a lot more doable. Are you guys looking into that at all?
I’m not familiar enough with that matter to comment. Maybe the other parts of IBM are looking into this, but I am not. But what I have heard from being tapped into public news sources in China and so on, VR has been extremely hot in the Chinese market as well, but the prediction is that 90% or more of the VR firms will fail due to the logistic and equipment, particularly hardware issues, because they basically need to fight people’s physical and mental fatigue in order for them to view after 30 minutes. Most people get dizzy beyond that time. I think the technology has to evolve, particularly the hardware.
If I could add something from the Salesforce perspective, we’re seeing field service show tremendous appetite for augmented reality, the ability to overlay diagnostic data and recommendation for a technician in the field. This addresses the issue that Henry was addressing. This isn’t an experience you consume for many, many minutes at a time, it is the right information being put in your field of view in a hands-free way. From a field service point of view, that’s great.
The other key point is that Pokemon go illustrated that you don’t need to have a very realistic AR to make it an interesting experience. Having the experience be engaging on its merits with just enough AR to deliver it, as opposed to being obsessed with keeping it as real it can be, as Henry said, that turns out to be very difficult to do from both physiological and hardware points of view, and it’s not actually what people seem to want.
It’s interesting, the hardcore games industry has made their money on folks who play games for hours and hours at a time. When you can’t do that, in a VR environment, it creates a significant barrier. Reese, any thoughts there?
Mark Zuckerberg just testified in court Tuesday in the dispute over the Oculus acquisition, which it turns out they spent over $3B on. He says that VR is 5-10 years away from being a viable consumer product, and they expect to spend at least another $3B from now to get it there.
I had not heard that, that’s interesting.
We are well past our hour, and we still have some questions left. We will follow up with those offline.
Thank you very much to our panelists.
Bruce, any closing thoughts?
Thank you to our guests, great insight on the major trends. If you have additional questions, send them to us at Corum. I would encourage all of you to go to our upcoming conferences. These are live events that talk about these same topics in a round table discussion, in some cases, an educational Merge Briefing, and the boot camp on how to sell your company, the leading one in the world, Selling Up Selling Out. With that, we will go to our closing.