Strong public markets and high demand for disruptive tech are continuing to drive high valuations for technology companies. Corum Group’s research team looked at the key deals, trends and valuations across all six tech sectors and 30 subsectors. What sectors are getting the highest valuations? What are acquirers after? How long will these good times continue? Corum’s senior dealmakers will also address six merger myths & misconceptions that might be keeping your company from taking advantage of today’s hot M&A market.
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Timothy Goddard: Good morning, afternoon, or evening, wherever you happen to be in the world. My name is Timothy Goddard, EVP of Marketing, here at the Corum Group. Very excited to bring you our Q3 report on tech M&A. We've got a lot to go through, there's a lot that happens, so we're gonna dive right in. Run through our agenda real quick, we've got an event report on a record conference held in London, field reports on two deals we recently closed here at Corum, the research report, and then a brief special report on six merger myths and misconceptions. Say that five times fast. But right now, I'd like to turn things over to Tanya Froehlich, based out of Zurich, Tanya?
Q3: 2018 WFS London Report
Tanya Froehlich: Thanks, I'm Tanya Froehlich, Director of the World Financial Symposiums. Recently we had the pleasure of hosting our 14th annual Growth and Exit Strategies Conference in London, and over 200 delegates from the financial and technology sectors in Europe met and discussed topics surrounding maximizing enterprise value, growth and exit options, whether through investment, buy-out, IPOs, sale and merger.
This was one of the most comprehensive events we've had the privilege of hosting, and the level of panelists and speakers, made for a very interesting and informative day. With speakers and delegates from 19 countries, the networking, and exchange of ideas and viewpoints, were particularly thought provoking and productive. We had panels covering venture capital, private equity, strategic buyers, and sellers who recently exited their companies. One of the highlights of this conference is really the ability of the audience to ask the panelists questions during their sessions. The speakers were all in agreement that valuations are high. This is one of the best times for funding and exits, and our group of venture capitalists are all actively providing growth capital, private equity, and strategic investors are competitively looking for new acquisitions.
The London Stock Exchange addressed some of the common misconceptions surrounding IPOs and the growth in European market, and while the M&A outlook is strong, many of our fellow speakers and delegates questioned the legs of this present M&A rally. So in regards to the timing related question, we do strongly suggest that companies and investors considering an exit in the next two or three years, take a moment and really closely look at the dynamics of their specific market segment to date.
And as Corum's Managing Director stated at the event, 2018 has been a record year for transactions. There is considerable pent up demand for deals. Beyond that we have clearly seen a significant increase in the valuations, a trend towards cash transactions, and favorable structures for sellers. We wanna thank everyone again, for participating at the recent London event. If you missed it, we do have two upcoming events, one in New York on the 16th of October, and one in Sydney on the 1st of November, so please take a look at our website and agenda at WFS.com. I wanna thank you again, and we hope to see you at a future event.
Timothy Goddard: Thank you Tanya. I do hope you can make it to one of these events. They really are spectacular. Now, I'd like to turn things over to Dave Levine, based in Vancouver, to tell us about a deal he recently closed, Dave?
Q3: 2018 PowerVision Report
David Levine: It is my pleasure to announce the acquisition of our client, PowerVision Software by Cortex Business Solutions in Calgary. PowerVision has been a pioneer and a leader in providing electronic document management that works on management software, to the oil and gas industry.
Since 1992, the company's technology is used primarily in finance departments in the oil and gas sectors to optimize payment processing workflows. Corum is thrilled to have helped PowerVision continue to scale through an acquisition. Cortex and Power Vision are a strong team. They have been partners for years, with many mutual customers, and the combination into a single company puts both the company and the customers into a very strong position going forward. Congratulations to the PowerVision and Cortex teams.
Timothy Goddard: Thanks Dave. Now back to Europe, Peter Prince based in London, Peter?
Q3: 2018 Captio Report
Peter Prince: It is my pleasure to announce the recent acquisition of our client Captio by Certify, who are in turn owned by K1 investments. Captio, have like most entrepreneurial businesses, built a strong software product focused on the expense management space, and has led the way in Europe for a number of years. Led by their CEO, Joel Vicient, the company quickly established a strong reputation and brand due to the vision of the leadership, in not only delivering a functionally rich product, but encompass solutions the various tax regimes throughout the European region.
Facing the same challenges as most young companies, as to whether to take further investment or go to the market, the board chose to find a strategic partner, which would allow it to further grow, and continue with future development, with the backing of not only a global leader in expense management, but also a global private equity firm. On many occasions throughout the process, Captio's management felt the emotional strain of the process and sought guidance from us on many subjects. The fact we were able to tell them that what they were experience was normal, was I know, a great comfort to them.
Finally, Corum extends its congratulations to all concerned with this transaction, and we watch with great interest as the expected synergies unfold and become reality.
Timothy Goddard: Thank you Peter, it's a great story. Now we're gonna turn things over to, not just our research team, but there's going on, we've supplemented with some folks from Clients Services as well as Marketing. I'd like to turn things over to Elon Gasper, Amber Stoner, Becky Hill, Alden Mendoza, Nadia Eckardt, and Beth Gotski, Elon?
Q3: 2018 Research Report
Elon Gasper: Thanks Tim, we begin with the public markets, which soared in Q3 to new records in the US, along with excellent performance from the Tokyo and French exchanges. So, Chinese issues fell further in its bear market. The Dow finally caught up enough to confirm the longest bull market run ever recorded, passing the nine and a half year dot-com bubble, as widespread investor confidence earnings and tech value powered markets to new heights. Looking back, it's been a long and impressively steady climb, so this October pull-back shouldn't be too surprising, particularly considering that the bull's nemesis, interest rates, continue their climb. Potential sellers should take a careful look at starting an exit process, to at least calibrate value, while this window of opportunity is still open.
Our Corum Index printed a significant uptick in Q3 deal volume, as buyers continued their steadfast search for growth and synergy. The surge in megadeals continued, promising more bolt-on and tuck-in opportunities, which should help make up for private equities shrinking platform shopping scope. VC exits decreased and our attributes stayed relatively flat. Looking through those megadeals, we saw cloud and other B2B domination, as five of our six sectors posted Q3 megadeals. In the Consumer sector, music streamer Pandora was grabbed for over $3B by subscription radio operator SiriusXM, to expand beyond cars, into homes and mobile. In IT Services, France-based international giant Atos spent $3.4B for outsourcing house Syntel, getting US customers but also presence in India, the location of the bulk of Syntel's workforce. In Vertical, insurance claims management firm Sedgwick was plucked out of KKR for $6.7B by Carlyle Group. In Horizontal, facilities management software maker Accruent was acquired for $2B, by industrial software vendor Fortive, based here in Seattle, to build on its existing IoT stack. And in the Infrastructure sector, Cisco made its second largest security purchase, paying $2.4B for two-factor authentication firm, Duo Security.
Looking at three-year valuation trends by quarter, we again observe strong performance of the three main B2B sectors, with Horizontal taking the Sales multiple lead at a record high, Vertical and Infrastructure not far behind. Horizontal rules the EBITDA multiples chart now, too. Clearly the market sees top value in software applications that have broad appeal among businesses, reflecting the preference cascade for cloud and SaaS solutions. So let's lead off our deeper dive with some examples of business diversity, in our Vertical markets sector, Beth?
Q3: 2018 Vertical Applications
Elizabeth Gotski: Sales multiples in the Vertical sector ticked up from the first half, with EBITDA metrics just off their mid-year highs. A/E/C, Financial Services, and Healthcare saw their multiples increase significantly since July. Real Estate swapped its sales and EBITDA trends, with decreases now in sales valuations, and increases in EBITDA.
In the Financial Services Sector, SS&C made its second megadeal this year, paying $1.5B for Boston-based Eze Software. The sector saw several European deals, as Sweden's trading and clearing player, Cinnober was grabbed for $190M by NASDAQ to reinforce its Market Technology division. London-based FX transaction cost analysis specialist, BestX, was picked up by custody behemoth State Street in another move to bolster its front-office capabilities after its Charles River megadeal. French alternative investment software firm Taliance, was bought for $23M by Canadian real estate company, Altus, to help it further its reach into Europe.
There was a traffic jam of connected car deals in the automotive sub-sector. Mexican OEM telematics solutions developer, Road Track Holding, was snapped up for over $90M, by Israeli vehicle tracking firm Ituran. We saw an example of our Smart Logistics trend when Denver-based Acyclica, which specializes in roadway and intersection data analysis, was picked up by thermal imaging camera maker FLIR, to become a part of its Intelligent Transportation Systems unit. And just this week, Trimble snatched up Brazil's telematic fleet mobility company Veltec, to expand its fleet safety roster.
EHR deals continued in the healthcare sub-sector. Minnesota-based EHR firm Mediture, was bought for $22.5M by medication safety company Tabula Rasa, to slot into its PACE offerings. PEs have taken a significant interest in the area as well. Georgia-based NueMD, which meshes next-generation EHR tech and patient engagement applications, was acquired by Marlin Equity-backed AdvancedMD. ADS Data Systems, which develops EHR and batch billing SaaS, was pocketed by Consolo, backed by Bluff Point. And patient safety and incident reporting company RL Solutions, was nabbed by TA-backed fellow firm Datix for its global reach. TPG's Mediware made several deals in the last quarter in post-acute, home health and hospice, and pharmacy analytics. In addition to the PowerVision that deal Dave led, Coreworx, which also creates information and document management for oil, gas, and energy companies, was acquired by Vela Software. Houston-based Quorum, digital transformation specialist, was acquired by Thoma Bravo. In Italy, energy digitization startup Yousave, was picked up by multinational energy distributor Enel, to leverage its demand management capabilities. And Boston-based utility analytics firm WegoWise, was bought by property management company AppFolio, to underpin its energy and water usage benchmarking solutions.
How did the Internet sector fare, Alden?
Q3: 2018 Internet Report
Alden Mendoza: Sales multiples regained half their Q2 drop, but EBITDA-based ratios fell almost as much, reflecting profit model uncertainties like back in Q1, when we saw the same kind of divergence, both occurred during congressional hearings on regulator scrutiny. Most sub-sectors dropped in both metrics, as value in the entire sector made way for B2B plays instead. It may not be a coincidence that Internet was the only sector without a megadeal in Q3. Turning to smaller deals, we begin in the eCommerce sector, where custom merchandise retailer CafePress, was purchased for $27M by online photo printing service Snapfish, to create a combined personalization platform. Also, online print giant Cimpress went on a buying spree, spending $29M for apparel and home decor on-demand retailer VIDA and $274M for canvas-print maker BuildASign.
In the travel industry, Chinese, book-now-pay-later air travel search engine, Gagfare, was acquired by Sharing Economy International, another traditional manufacturer pivoting into tech via M&A, a common move by traditional Chinese firms, as we have mentioned before. Hotel booking-site Getaroom, was sold to PE firm Court Square Capital Partners, to accelerate Getaroom's international expansion. In Germany, online travel agency Tropo, was acquired from media conglomerate ProSiebenSat.1, by air services provider Dnata, part of the Emirates Group. Additionally UK-based online jet charter exchange PrivateFly, was picked up by OneSky, adding its suite of systems and services for private jets.
In the ticketing arena, inventory aggregator Rukkus, was nabbed by no-fee ticket vendor TickPick in late July, adding its 360 degree venue viewing solutions, as TickPick builds on its recent purchase of secondary marketplace Razorgator. Eventbrite continued its acquisition streak, picking up early access event ticketer Picatic, gaining access to Picatic's API and distribution partners. Ticketing software developer Boxxo was purchased by San-Francisco event manager Vendini, to strengthen its presence in the Canadian ticketing market. And SportStadion, a Dutch racing ticketing operator, was bought by Miami-based Motorsport.com, continuing its international expansion. How did the IT services market fare, Nadia?
Q3: 2018 IT Services & BPO
Nadia Eckardt: Last quarter, both Sales and EBITDA in the Developed Markets rested on their multi-year highs, as the Emerging Markets showed nearly the same steady performance.
The Focused IT Services trend continued to drive deals with particular emphasis on Amazon Web Services and Salesforce integrators. Last quarter continued to demonstrate a high demand for Amazon Web-based services-based sellers, with global deals including storage and IoT powerhouse Hitachi Vantara's acquisition of REAN Cloud, to improve Vantara's multi-cloud orchestration offerings. And other M&A activity included Deloitte's acquisition of CloudTrek, to fortify its AWS capabilities. Last month, Salesforce-based acquisitions included System Partners, acquired by managed services veteran DXC. And Cognizant's acquisition of both India-based SaaSfocus and US-based Advanced Technology Group, aimed at bolstering Cognizant's provision of end-to-end services.
Elsewhere, we saw Atlanta-based POS and signage services agency Allure, which was sold to customer engagement firm Creative Realities to access new vertical markets.
Finally, in the automotive space, Munich-based Objective Software, with its autonomous drive and connected mobility, was picked up by Switzerland-based Luxoft.
Q3: 2018 Horizontal Applications
Alden Mendoza: Horizontal Sales and EBITDA multiples surged in July and continued to grow throughout Q3. The HR and ERP sub-sectors remained buoyant in both metrics, and we also saw an increase in Marketing, CRM, and SCM sub-sector multiples, with deals across the entire Horizontal sector.
In a landmark horizontal megadeal, marketing automation giant, Marketo, was bought for nearly $5B by Adobe, in its largest acquisition. Marketo was taken private by Vista Equity in 2016 for $1.8B.
Asia saw a number of marketing automation deals including Qgraph, who was bought by Taiwan AI startup, Appier to add to its new automation platform, Aiqua. And mobile engagement platform Karix Mobile, was pocketed for almost $34M, by cloud communications company Tanla Solutions, offering a single source for a comprehensive suite of communications services.
AI enablement featured heavily in the marketing automation space. Marketing intelligence platform Datorama, was bought for $800M by Salesforce, to bolster its Marketing Cloud service. Canadian digital ad platform Cluep, was snapped up by grocery sales and marketing agency Impact Group, to power up the industry with AI. And speech recognition software Liv.ai was grabbed by Flipkart to accelerate conversational e-commerce in India while also providing a platform to compete with Amazon's Alexa.
In the workforce management space, Providence Equity Partners rolled up BirdDogHR, along with Corum client ExakTime, into its new HCM platform, Arcoro. And just this month, Arcoro bolted on InfinityHR for its personalized HR management solutions.
Another Corum client was also involved in a roll up, as Certify acquired Corum client Captio, as Peter described earlier, as well as Abacus Labs, as it challenges SAP-owned Concur, in the expense management arena. Elsewhere in the space, Dutch procurement software developer Esize Holdings was bought for $16M by UKs spend management company Proactis.
We also saw activity in Smart Logistics, where Spanish customs solutions provider Taric, was picked up for over five times revenue by Australian logistics software group, WiseTech Global. Serial acquirer WiseTech made its tenth acquisition of 2018 days later, paying nearly $30M for Trinium Technologies, a provider of intermodal trucking management systems. Other smart logistics deals included parcel and transportation management solutions.
What happened in Infrastructure, Amber?
Q3: 2018 Infrastructure Report
Amber Stoner: Sales multiples in the Infrastructure sector continued to climb back near 2018 highs, with EBITDA metrics also climbing over Q3, nearing 12 month highs. The security sub-sector saw increases in both metrics, along with storage and network management, while sales multiples in endpoint and EBITDA multiples in ITSM both dropped back a bit.
Security deals drove much of the M&A activity in the sector. Endpoint privilege management company Avecto, was acquired by secure access software developer Bomgar, shortly after it joined Francisco Partners' portfolio. Bomgar then bolted on privileged access management company BeyondTrust, expanding Bomgar's solution portfolio for securing and defending against privileged access security threats. In Denmark, multi-factor authentication specialist SMS Passcode, was bought by identity and secure transaction solutions firm, Entrust Datacard, to enhance its real-time threat awareness with pattern analysis. Identity theft protection provider IdentityForce, was acquired by fellow anti-fraud company EZShield. London-based Identity-as-a-Service startup Pirean, was picked up by IAM firm Exostar, expanding both its vertical and geographic presence. And biometric identity veteran Cross Match was acquired by secure identity solutions provider HID Global, to help boost its share of the trusted identity space.
In the network security space, Secure Designs, which offers managed Internet security services for small businesses, was bought by home security giant ADT, to strengthen its digital portfolio. Here in Seattle, network threat triage startup ICEBRG, was picked up by network traffic visibility expert Gigamon, to fortify its GigaSecure security delivery platform. And Montreal-based open networking firm Inocybe, was acquired by Kontron, to shore up its software-defined networking capabilities.
Elsewhere, DevOps security innovator Prevoty, was bought for $140M by web app security company Imperva, which was just acquired by Thoma Bravo for $2.1B. Seattle-based malware protection firm Intego, was picked up for $16M by London's consumer security software developer Kape, to broaden Kape's Mac cybersecurity offerings. And Sift, which utilizes machine learning to provide breach detection and automated response for Infrastructure as a Service environments, was acquired by threat intelligence company Netskope, for Sift's transaction visibility capabilities.
In the data management space, Hadoop software company Podium Data, was picked up by BI visual analyst Qlik, giving it an end-to end solution. Corum client AnalytiX DS, which manages metadata, was acquired by data governance company Erwin. And data analytics specialist Treasure Data was bought for a reported $600M by computer-chip designer ARM, to create an end-to-end IoT device management SaaS platform. Intel continued making AI acquisitions, picking up Seattle-based deep learning startup Vertex.AI, to further enable flexible deep learning in edge computing.
And finally, integration platform-as-a-service specialist Built.io, was acquired by Software AG, to expand its hybrid and cloud integration capabilities.
Becky, what's happened in the Consumer sector?
Q3: 2018 Consumer Applications
Becky Hill: We saw a slight increase in sales multiples in the consumer sector, while EBITDA metrics soared to the levels they were at early this year. The casual and core gaming sub-sectors both saw decreases in EBITDA metrics, though sales metrics for all other consumer sub-sectors increased this quarter. In a megadeal in September, Shanghai-based online gaming firm Shanda Games, was grabbed for $4.4B and over seven times sales by automotive parts manufacturer Zhejiang Century Huatong. The deal marks yet another example of traditional Chinese buyers shifting into tech. Just a couple of months after listing on NASDAQ, Baidu-owned video streaming giant iQiyi, picked up mobile gaming studio Skymoons, for $190M to diversify its monetization model with Skymoon's tech and IP.
Elsewhere in mobile gaming, Industrial Toys, known for its sci-fi shooter game Midnight Star, was picked up by EA in its pursuit of small indie studios. Mobile and VR games developer Seismic Games was bought by Pokémon Go creator Niantic, in its third VR acquisition this year. Plexchat, which develops a chat system for mobile gamers, was acquired by Warner Brothers to improve community features in its slate of mobile games. And Bulgarian multiplayer strategy game developer Imperia Online, was picked up for nearly $12M by Sweden's Stillfront, in addition to its stack of studios with long-term gamer loyalty.
In the betting space, Highlight Games, which creates sports-focused virtual games for gaming operators, was bought for $7M by Stockholm-based Cherry, to use Highlight's rights for footage of historical football matches in its Eurobet product. And Slovenian i-Gaming turnkey solutions firm Oryx Gaming, was acquired for $8.7M by GIVEMESPORT owner, Breaking Data, to leverage its Facebook fan base into the sports betting market.
October 2018 Kicker
Elon Gasper: And here's the first megadeal of Q4, data management firm Hortonworks, merging for $2B into stock rival, for all stock into rival Cloudera, to scale up its Hadoop open-source offerings and focus on edge to AI enterprise cloud. Consolidation between such near equals may result not only in setting industry standards, but also pulling in yet more tuck-in transactions. One reason these megadeals matter to other, smaller sellers. And that's our quarter, back to you Tim.
Timothy Goddard: Thank you Elon. Let's dig in a little more on this question of what it looks like to go to market. I'm gonna turn things over for this special report, to Joel Espelien, recently promoted to the President of Corum Group. Congratulations Joel.
6 M&A Myths and Misconceptions
Joel Espelien: Thank you, Tim. Far too many CEOs and owners of software and IT companies are not getting what they're worth, not even calibrating their value in the market, arguably the best tech M&A market in history. One of the main reasons is that they fall victims to a number of myths and misconceptions about the M&A process. Here are six of the major ones. Myth number one, and I guarantee you've all heard this one, companies are bought and not sold. Let's here from Jon Scott in Amsterdam.
Myth #1: Companies Are Bought, Not Sold
Jon Scott: Do you just wait for the phone to ring, really? Unfortunately that first call is usually from some bottom-feeder tryin' to lock you into exclusive negotiations, to keep you from calibrating your true value with other buyers. They wanna control, what'll be the most important transaction of your life. Don't wait for them to call, you control the process, talk to multiple bidders, and calibrate your true value.
Joel Espelien: Thanks Jon. Remember folks, the best defense is a good offense. This applies to M&A as well. Myth number two, and almost as popular as myth number one, just hang out with the companies that might buy you. Let's hear from Rob Schram.
Myth #2: Just Hang Out With The Companies That Might Buy You
Rob Schram: This overly ambitious expectation often occurs with key customers or partners. The problem is that a pre-suppose is you know who will buy you, which is difficult to do as buyers are constantly changing, and many are often companies, you've never heard of. Further, the level on which you hang out, is usually the product, technical, or marketing teams, while strategic acquisition decisions are being made at the top, with corporate development and C-level executives.
Joel Espelien: Thanks Rob, there's nothing wrong with biz dev, but it's not the same thing as corp dev. Your marketing and biz dev contacts, pretty much never have the ability to do a deal. Moving on, myth number three, we can't sell, our balance sheet or financials aren't good enough. For this one, there's no one better to hear from, than our deal-maker in Silicon Valley, Marc O'Brien, Marc?
Myth #3: A Weak Balance Sheet/No Profits Means I Can’t Sell
Marc O’Brien: Merger transactions in our industry seldom have to do with your balance sheets, and income statements are less important for smaller firms. You represent future opportunity to the buyer, with your technology edge, first-mover user-base, and the domain expertise you've developed, often in one of the disruptive technologies Corum covers, that shapes our lives.
Joel Espelien: Thanks Marc, well said. For myth number four let's turn to Dan Bernstein, who I'll be joining down in Sydney, for WFS in just a few weeks, Dan?
Myth #4: I Am Too Small To Sell
Daniel Bernstein: I am too small to sell. This used to be a valid excuse if the buyers didn't want to talk to anyone smaller than $5 million in revenue. That's really changed in recent years. Today, with so many global buyers and over $4 trillion in dry powder, buyers are open to smaller firms, even those that are embryonic. Private equity firms especially, they have established many platform companies and are looking for bolt-on acquisitions they want to see early.
Joel Espelien: Thanks Dan, we see interest in smaller companies all the time. Myth number five, I can't sell, I have too many problems. For this one, let's go to Rob Griggs in Minnesota.
Myth #5: If A Seller Has Problems: They Can’t Sell
Rob Griggs: Buyers are very savvy, and know that it is hard to build a technology company without problems, in today's litigious society, thus they are prepared to work on an acquisition that works for both parties, simply by using creative structure that frames the business risks associated, with proper cures, including escrows, hold backs, baskets, income targets, et cetera.
Joel Espelien: Thanks Rob, and speaking of problems, thanks for getting the Vikings back on track as well. Last but not least, myth number six, the buyer will force me to relocate or fire all of my management and staff. For this one we close with Ivan Ruzic in New York.
Myth #6: The Buyer Will Relocate (Or Cut) Management & Staff
Ivan Ruzic: This last myth is much the opposite of today's reality. It's not to say that there isn't some relocation or redundancy reduction, but it's not the norm. Further, with today's full employment, buyers want your staff. If they let go, you'll be able to negotiate a good severance package. The right advisor will help you prepare, and put together a financial package for your staff, to ensure proper, positive integration.
Joel Espelien: Well said, I hear this last one from CEOs on a regular basis, and it is a serious misconception. Relocations in particular, have become few and far between in these kinds of deals, chiefly because they just don't work. Well with that, it looks like we're just about out of time for today's webcast. Send in our questions via email, and we'll be happy to respond. We look forward again to seeing many of you, either at WFS New York on October 16, or WFS Sydney on November 1. Good day everyone, and let's go to our close.