A special report on markets and valuation in this new world. Topics will include 2020 transactions, the changing outlook for them, and their valuations. We’ll look deeper into the pandemic’s effects on Tech M&A, the resultant recession, how sectors of tech and buyers have been shuffled, and what’s an optimal outcome now after the sudden drop ended the long bull market.
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The Pandemic and Tech M&A - Introduction
Good morning, afternoon, or evening, depending on where you are. Welcome to the Corum Tech M&A monthly webcast for May 2020. I'm Heidi Owen, Director of Marketing at Corum, and I'll be your host for this special report-focused episode, where we'll be taking a look at how the tech M&A market's doing in the midst of the pandemic. Please feel free to chime in with questions on the Q&A sidebar throughout the webcast. After the report, we'll make slides available for your reference on our website, and you can also reach out directly via info@CorumGroup.com with any additional questions or comments.
All right, here's what we have for today. We're going to start with a quick check-in with recent events, then straight into our quarterly report covering all six major markets: horizontal, vertical, consumer, Internet, infrastructure, and IT services. We've got a lot of information to get through, so let's get started.
Virtual WFS Event - Growth & Exit Strategies Conference
First, to Matt, who led the first-ever all-virtual Growth and Exit Strategies Conference for WFS. Matt?
Thanks, Heidi. The WFS went fully virtual for the first time ever. With our flagship conference, Growth and Exit Strategies for Software and IT Companies, we had an amazing turnout with great feedback from our attendees, many saying they walked away with a lot from the discussions and presentations on tech trends, valuations, and the perspectives of buyers, sellers, investors especially in the new situation we're all in with the pandemic and how that's affecting tech M&A. We had an excellent roster of speakers -- Redfin, Madrona, Microsoft, Salesforce, Greater Sum Ventures -- really a great group of people. So much knowledge in that virtual room. It was a rare event and we were so thankful for all those people for joining us and providing their perspective and their insights.
There were more than 500 registrants and hundreds of great attendees from all over the US and even parts of Latin America. This was without a doubt a record-breaking conference for the World Financial Symposiums. We continue to lead the industry in bringing together sellers, buyers, investors, and tech leaders from around the country and around the globe in tech M&A. We're looking forward to growing our numbers with future events and expect to spread our reach to hit new markets in Europe, Asia, and elsewhere. Thank you again to Corum for being our Platinum Sponsor, and we look forward to working with you again in the future.
Q1 Tech M&A Report: Public Markets and Corum Index
We begin with the public markets, which peaked early then fell at unprecedented speed to the pandemic, putting an end to the long bull market, trillions in paper wealth, the crash and lockdowns, gutted centers like travel and leisure along with many software companies that service them. European markets fell the most. Hong Kong the least. Net quarter has taken things back to about where 2017 started -- two years erased, a new era demarcated, and the world remains in shock. The effects are still ongoing, of course. The country and world will survive, but this is a bear market with a majority of sectors to see more steps down in value, whether from falling to challenges or inflation of the currency. Unless you are young and can take it another seven years, we advise you to get on the market while you have a viable company.
Our Corum Index for Q1 shows there's still buying going on. Deal count for the quarter and number of megadeals even higher than a year ago, and our pipeline printed PE supply squeezed at platform level with VC exits almost unchanged.
But enough of them, we're in April now. Corum Index, as well as the pipeline, indicated decrease of activity. However, we can even spot megadeals. Although closings are delayed, the coronavirus pandemic has forever altered the M&A landscape.
Looking at our six sectors, we see most sales and EBITDA multiples rolling back to the levels of 2017 or even 2015, with Internet reaching its historic lows and IT services touching its traditional one-time sales.
Tech M&A Q1 Report: Horizontal Sector – Human Resources
Let's look at the performance of all sectors in Q1 and April as well. We'll begin with representative deals of Q1 followed by April transactions in all six sectors starting with horizontal where both sides and EBITDA multiples fell hard in March, interrupting their rather stable performance during the previous months. But all multiples ticked back up in April. We tracked deals in customer analytics, smart logistics, and human resources, where cloud-based HR software maker Cornerstone OnDemand spent $1.4 billion on enterprise learning management company, Saba.
Among other HR deals in Q1, competency assessment platform, Optus, was bought by global information analytics firm, Elsevier, to advance its assessment solutions. And customer analytics, personalization, and analytics app developer, Localytics, was acquired for $68 million at 3.3 times revenue by cloud-based enterprise work management software maker, Upland Software, to deepen its mobile offerings. The smart logistics trend drove deals in the space as well as warehouse management platform, Peoplevox, was purchased for more than $24 million by Descartes to strengthen its eCommerce capabilities.
More HR deals took place in April including applicant tracking software, Quantec, being acquired by workforce management company, Team Software, to enrich its suite with pre-hire solutions. Workforce management solutions, WorkTech, was bought by asset management software developer, Prometheus Group. And talent acquisition platform, ROIKOI, was sold to staffing firm, Terminal.
Q1 Tech M&A: AdTech, Sales & Marketing, Business Intelligence
In adtech, location-focused startup, Factual, was merged with location data platform, Foursquare, putting itself in a position to compete with Google and Facebook in the digital ad space. Analytics and optimization platform, Adstage, was purchased by digital marketing company, TapClicks. And card-linked commerce platform, Empyr, was bought by engagement solutions provider, Augeo Affinity Marketing, to build a new retail technology platform.
In sales and marketing, team management application, LeadOwl, was acquired by Cache Ventures in partnership with 360 Family Office, kicking off its first acquisition. And in Brazil, sales management software provider, Wealth Systems Informatica, was sold for more than $5 million to ERP software developer, Totvs, to boost its development in the business performance field.
In the business intelligence sub-sector, network monitoring and trade analytics software firm, Velocimetrics, was purchased by business performance analytics company, Beeks Financial Cloud, to enrich its offering with network automation and trading analytics.
Tech M&A Q1 Report: Healthcare and Homecare
In March, we spotted decreases in both sales and EBITDA metrics across all vertical sub-sectors, but April saw both sales and EBITDA rising. In Q1, Munich-based car embedded software developer, ESR Labs, was grabbed by Accenture to focus on smart connected solutions. In healthcare, mobility controls developer, Dynamic Controls, was scooped up by precision and specialty motion control systems maker, Allied Motion, strengthening its position in the patient mobility and rehabilitation market. And AI-driven comment analytics from, NarrativeDX, was purchased by patient survey SaaS, Press Ganey, building up the ability to provide consumer insights.
The pandemic has accelerated the use of digital communication tools across the healthcare sector, which was followed by higher M&A activity in the space. For instance, drug development simulation firm, Lixoft, was bought for $11 million by simulation and modeling software company, Simulations Plus, to increase its presence in the European market. Healthcare company, Takeda Pharmaceutical, sold its oncology tool, Gaido Health, to digital therapeutic startup, Biofourmis. Health social media analytics platform, Symplur, was acquired by healthcare marketing firm, W2O, who they have previously partnered with to track COVID-19 specific conversations and trends. And London-based healthtech startup, Huma, rolled up employee mental health monitoring firm, Biobeats. And cardiovascular specialist, Tarillian Laser Technologies, to boost its biomarker platform.
Home care agency support company, Tri-Cura, was acquired by connected home platform, People Power, to deliver advanced telehomecare solutions that respond to COVID-19 caregiving challenges.
Tech M&A Q1 Report: Legal, Real Estate, and AgTech
In the legal sector, digital and physical evidence management firm, QueTel, was bought by Riverside to add to its security management solutions. And lead management solutions provider, Lead Docket, was pocketed by case management application, Filevine, in its first acquisition.
Moving on to real estate where Dropmodel, a developer of analytics and financial modeling solution for real estate market, was purchased by home valuation fintech company, House Canary. Real estate tech pioneer, Virtual Properties, was bought by Constellation 1, reinforcing its position in the real estate technology market. Title software platform, Closers' Choice, was sold to real estate closing platform, AccuTitle, to expand its customer base and reach into the south Eastern region.
In agtech, eCommerce platform, Salesbee, was purchased by digital agroecosystem, Plantix, to bolster its presence in India and Southeast Asia. In the livestock industry, tech company performance, Livestock Analytics, was acquired by animal healthcare services provider, Zoetis, to beef up it's digital and data analytics offerings.
Q1 Megadeals: Insight Partners Acquires Veeam and Armis
Against other sectors, the fall of the infrastructure multiples in March wasn't that harsh. And now we can all see indices growing. We spotted megadeals here as PE firm Insight Partners went on a little shopping spree in the sector, spending $5 billion at five times revenue on backup solutions developer Veeam and over $1 billion on IoT security firm, Armis.
Tech M&A Report: Security Deals for Q1
Among other security deals in Q1, physical security information management tech firm, CNL Software, was acquired for almost $36 million by Everbridge. Credit and fraud risk enterprise solutions developer ID, Analytics, was bought for $375 million by risk management content provider, LexisNexis Risk Solutions, to boost his capabilities in fraud and identity management.
The flow of security deals streamed into April, with application security firm, Arxan Technologies, being purchased by enterprise agile lifecycle management specialist, CollabNet VersionOne, to merge with its new streaming platform.
Incident response platform, Syncurity, was acquired by security automation company, Swimlane, adding to its solutions for operations teams. Cybersecurity software developer, Avira, was bought for $180 million by PE firm, InvestCorp Technology Partners. Encryption key management solutions, KeyNexus, was sold to virtual storage area network solutions, StorMagic, to mark its first acquisition.
In the ID and access management space, biometric hardware and software solutions banker, Fulcrum Biometrics, was purchased by Fujitsu Frontech to boost its multimodal authentication business. Digital identity specialist, Connectis, was acquired by its Norwegian competitor, Signicat, to grow its share in the identity verification market. In the IoT area, communications-as-a-service provider, Thingstream, was bought for more than $10 million by Swiss IoT company, u-blox, adding a full IoT connectivity solution to its portfolio.
Q1 Tech M&A Transactions: Consumer Sector – Gaming and Streaming
Consumer technology has held up well under the pandemic with a sharp jump in April EBITDA metrics which hit record levels, while sales metrics held steady. The rise in EBITDA metrics was driven by the core gaming sector, as well as newly profitable media streaming companies.
UK's mobile studio, Eight Pixels Square, was acquired by Tencent-owned Swiss publisher Miniclip, moving further into the mobile shooter genre. Embracer Group kept growing its portfolio, spending $150 million on Saber Interactive, the company behind the World War Z video game. And esports platform, HLTV.org, was acquired for almost $29 million by sports betting media group, Better Collective, to broaden its national footprint.
In April, gaming deal flow continued as Hypixel Studios, the company behind the upcoming sandbox RPG, Hytale, was bought by Riot Games. And game development studio, PierPlay, the maker of the recently launched Scrabble Go mobile word game, was picked up by LA-based studio, Scopely, closely following the acquisition of FoxNext Games.
In streaming, Amsterdam-based OTT app specialist, The Widget Company, was nabbed by WarnerMedia, pushing further into the OTT space. The deal comes on the threshold of rolling out its HBO Max streaming service. And Walmart sold its on-demand video service, Vudu, to movie ticketing company Fandango, planning to scale its video rental business to better compete against Amazon and iTunes.
Q1 Tech M&A Transactions: Travel, Food, and Sports
In March, both sales and EBITDA multiples in the internet sector decreased significantly, especially in the travel sub-sector. Nevertheless, deal flow continued in food delivery and social networking when WeWork sold its community meeting platform, Meetup, to VC firm, AlleyCorp. And marketing executive social network, The CMO Club, was purchased by Salesforce, continuing its shopping spree started in February with major acquisitions of Velocity and Evergage.
Increasing popularity of food delivery services drove the deal flow in April, as digital online marketplace, FoodChain, was acquired by software solutions and service provider, Dohmen, identifying its fourth acquisition in the past five months. And online grocery delivery service, Boston Organics, was sold to food eCommerce company, GrubMarket, to bolster its nationwide presence.
In the world of sports, gym membership application, Combine, was purchased by fitness studios, Bruce. And sports and fitness software developer group, STADLINE, was sold to business management software firm, Transaction Services.
Tech M&A Report for Q1: IT Services
IT services followed the general tendency and dropped its multiples in March, but now they came back to February levels. There was some activity in the government services sub-sector as federal business of Unisys was sold for $1.2 billion to tech integrator, SAIC, in its quest to become a leading IT modernization provider in the government services market.
Q1 saw deals among the focused integrators as Salesforce integration firm, Simplus, was bought for $250 million at three times revenue by Infosys, growing its Salesforce consulting arm. Accenture continued its shopping spree, spending nearly $140 million on London-based cybersecurity consultancy, Context Information Security, to bolster international growth of Accenture's security branch.
May 2020 Monthly Tech M&A Report: Recent Acquisitions
And now moving to April, when Accenture bought enterprise security firm, Revolutionary Security. Mission-enabling technology provider, Excivity, was purchased by defense-focused technology firm, AEGis Technologies, to extend its national footprint. Outsourced security services company, Paladin, was purchased by holding company, MVB Financial, to strengthen its fraud prevention capabilities. AI-based security integration services specialist, Beck, was bought by Waterland Private Equity Investments to combine with newly acquired cloud company binary and communication services firm, direkt gruppe, aiming to create a new platform for managed enterprise clouds.
Among focused systems integrators, IT consulting services firm, Prolog Partners, was purchased by PE firm, Century Park Capital Partners, to deploy its Oracle cloud logistics. Cloud services company, Agosto, was bought by data and analytics services company, Pythian Services, to deepen its Google cloud platform expertise. Technology consulting firm, Adessa Group, was acquired by human capital consulting company, Worx Group, to boost its SAP capabilities. And Microsoft Azure training and consulting company, ObjectSharp, was sold to cloud data managing company, CentriLogic.
In software development, Slovenian Bitcoin and IT security specialist, Crea, was purchased by blockchain-centric company, nChain. Lastly, IoT development firm, BreadWare, was bought by oil and energy company, StoneAge, to build up its automation capabilities. And that's our report.
Thank you to the Corum Research Team. Great job putting that together.
The Pandemic and Tech M&A
Things are far from normal at the moment and they likely won't be for a while. We're still keeping a close eye on the tech M&A market as we monitor the movements of sellers and buyers, day in and day out.
Considering our report, right now is a good time to assess your position. Think about the realistic options you have. Figuring out the timing and understanding the M&A is an important tool and calibrating the market is essential. So, reach out if you have questions.
That brings us to the end of today's Tech M&A Monthly. Thanks for joining us, and we look forward to seeing you again next month. Stay tuned to find out how to get in touch.