In 2021 we saw a record number of Tech M&A deals. Fundamental change in the way people live and work is impelling the growth of disruptive technologies. No company has the foresight to always lead the innovation curve. The most successful acquire the pioneering companies with the expertise to help them continue that disruptive success. Every year, Corum leverages its vantage point in the marketplace to develop a list of the key trends driving deals, drawn from the thousands of interactions through conferences, research and transactions in every sector, these are the trends that are shaping the tech M&A environment in 2022.
It was only a couple of years ago that technology and AI were going to devalue the worker and put everyone out of a job. It didn’t work out that way. Instead, the individual worker is wielding AI and other technology to become more productive and valuable than ever. The employment market has fundamentally changed, driving new demand for tools that enable companies to attract, retain and empower employees at every level. These tools can be broadly horizontal, such as Corum client Dynaplan’s workforce planning capabilities, which drove Dynaplan’s sale to Concentra Analytics. They can also be vertically focused, enabling enhanced productivity in niche markets, such as Infinity Enterprise Lending Solutions, the leader in software for alternative credit lenders, acquired by Constellation Software. Other landmark deals driven by this trend are Citrix’s $2.25B acquisition of collaboration & productivity SaaS platform Wrike and Workday’s $700M acquisition of employee engagement SaaS Peakon. Both are extremely strategic deals with valuations well beyond 15x revenue. Technology companies that enable demonstrable improvements in employee engagement, retention and productivity in today’s radically altered environment will see real interest in the year ahead.
Predictive analytics have long been a key area for Tech M&A. Today, tools that can move beyond predictive to prescriptive are top of mind for acquirers. The current market is very receptive to software that directly enables better decision-making in real time, empowering executives or employees at any level to quickly respond to practical insights. Often empowered by AI, IoT and other advanced technologies, and undergirded by structured “data fabrics” to handle scaling and resilience, the analytic tools in demand today address business performance in environments where time and competition are key factors. They are not simply visualization displays, but highlight specific action geared towards specific results. Platforms that have the ability to capture unique or otherwise difficult to acquire data, and discrete feedback loops to use that data to enhance decisionmaking going forward, will be of particular interest to buyers. Similarly, we’re seeing demand for companies with access to sufficient data across their customer base to offer benchmarking analytics to those same customers. Corum’s sale of Centrica’s Io-Tahoe subsidiary to Hitachi Vantara was driven in large part by this trend. Likewise, Corum client Compellon was acquired by Clearsense for its “plug and play” AI analytics capabilities. Vertical use cases include ecommerce, where Reflektion was acquired by Sitecore for nearly 7x revenue; fleet management, where Athene Holding acquired Donlen Corporation from Hertz for nearly $900M; and healthcare, where Inovalon was acquired by a PE consortium for over $6B and over 10x revenue.
Modern global supply chains have been pushed to the limit, underscoring the need for Smart Logistics technology. The automation of both delivery and supply chains is taking place at a pace never seen before, with applications such as fleet tracking, small parcel delivery, procurement, returns management, warehouse management and supply chain management, all taking center stage. The immediacy of these needs is driving M&A. Developing technology can take years, time that the current situation does not allow for. Companies across the global supply chain need field-tested solutions with an existing customer base that can be integrated and implemented immediately. This means more M&A at earlier stages for these companies. Deals range in size from megadeals, such as Panasonic’s acquisition of AI-enabled supply chain solution provider BlueYonder for $5.6B, to Wolters Kluwer’s acquisition of planning and forecasting solution provider Vanguard software for $110M and 15x revenue, to Mercell Holding’s acquisition of procurement software provider Negometrix for over $32M. Expect sustained demand for Smart Logistics technology as pressure builds on supply chains globally.
COVID-19 put the Healthtech Continuum to the test, intersecting longer term demographic, technological and regulatory trends to create a unique M&A environment. With healthcare taking and keeping the center stage globally, it drove key needs across the global heathcare system to the fore. Traditional inpatient health systems need a unified view of patients across the continuum of care, both before and after they enter the facilities. This requires integration with telemedicine and patient engagement, as well as distributed services in post-acute and palliative care settings. Major tech companies have coveted the opportunities created by this broad continuum, and are putting real dollars behind it through megadeals such as Microsoft’s nearly $20B acquisition of Nuance, and Oracle’s $30B acquisition of Cerner. The ripples from these deals will be felt at all levels of the market. Additionally, tech that weaves clinical trials more tightly and efficiently into the overall continuum of care is also seeing significant interest—such as Corum client Carenity, acquired by Bid Equity. Meanwhile, tech for underserved markets such as mental and behavioral health is seeing increased demand, such as Corum client Breaking Free acquired by LifeWorks.
BLUE COLLAR SOFTWARE
Disruptive technology trends are reshaping the underserved “blue collar” markets, where companies are seizing the opportunity to leapfrog from paper and pencil solutions to AI-enabled, SaaS-first, mobile-first and IoT-integrated systems. Skilled labor occupations comprise between half and 60% of all workers, and those workers are seeing their roles and industries transformed by these disruptive technologies, enabling them to better build, sell, move, plant, harvest, inspect, maintain, repair and more, across multibillion-dollar industries such as construction, agriculture, transportation, manufacturing and many others. At Corum, we see this driving deals across the A/E/C sector, such as when our client E7 was acquired by Bentley for E7’s field-based workflow capabilities in heavy construction, and when Altair acquired S-Frame, maker of structural analysis software specializing in timber construction. In mining, tech pioneer MineRP was acquired by equipment manufacturer Epiroc. Underserved sectors were also featured in other deals, from alternative lenders, to catering, to manufacturing. Looking forward, we expect that sustainability goals along with environmental, social and governance factors will shape M&A activity in industries such as agriculture, energy and oil & gas.
The Low-Code Everywhere trend continues to be a great example of technological trends and business needs converging to create unique M&A opportunities. Buyers have a clear preference for predictable, recurring revenue derived from self-service SaaS solutions. This focus has created significant value, but it has also created significant heartburn and missed opportunities in more complex environments where software has necessarily carried a significant amount of services burden. Enter low-code and no-code technologies. From sprawling factory floors to complex laboratory environments to shifting regulatory pain points, technology can now leverage the best practices built around low-code development to offer highly configurable and customizable solutions as straightforward SaaS. Related and enabling technologies, such as Robotic Process Automation and Business Rules Engines, will also see benefits from this trend. We’re seeing this in particular in the Manufacturing sector. Corum client Leading2Lean, recapitalized by M33 Growth, is a perfect example of this trend, with its low-code manufacturing execution system enabling enhanced efficiencies and continuous improvements on the factory floor.
The Composite Commerce trend continued to mature in 2021. After a rush to get online during the lockdowns of 2020, the new normal of online/offline transactions set in, and tools to drive efficiency, customer satisfaction and automation were in demand by both customers and acquirers. This is true in broader retail situations, as well as in distinct niches, such as catering software maker Total Party Planner, acquired by Fullsteam in a Corum Buyer League transaction. It also drives new interest in martech innovators, such as AI-enabled video creation engine Vidnami, a Corum client acquired by GoDaddy, or Corum clients Crossware and Woorank has been acquired by Ekomi and Bridgeline Digital, respectively. Elsewhere, Lightspeed POS acquired Ecwid for more than $500M and over 25x revenue, specifically around the convergence of online and offline sales for small businesses. In 2022 we will see continued demand for tools that enable remote digital commerce, particularly in spheres where it hasn’t been preferred or even possible. Payment flow will continue to enable deals, and niche ERPs that integrate payments will remain in demand. As remote platforms and strategies continue to mature, customer service technology like chatbots will see significant interest.
Remote work has settled into a new normal, with remote capabilities far more critical than before. Security and other tools that provide, maintain, leverage and secure the remote infrastructure are increasingly necessary—major tech providers are scrambling for ways to balance the competing needs of increased security and flexibility. Meanwhile, we have the ongoing threat of data loss and operational interruptions from cyberattacks, which continue to increase in their level of sophistication with ransomware attacks now coming in multiple stages. The Colonial Pipeline ransomware attack was in some ways a watershed event, where consequences were felt directly by so many. This drove tens of billions of dollars of M&A in 2021, with names like ProofPoint, Avast, Auth0, Mimecast and McAfee, all acquired in megadeals. It wasn’t just household names either. Deals such as mobile security provider Wandera acquired by Jamf Software for $400M and 16x revenue, and ecommerce fraud prevention specialist Kount acquired by Equifax for $640M and over 12x revenue, are only two of the hundreds of other deals across the sector. Key tech approaches such as zero trust, anti-fraud, identity management, AI-enabled anomaly detection and innovative multifactor capabilities including biometrics will continue to be prominent in the year ahead.
EDGE OF THE CLOUD
On the backend of remote infrastructure lies the public cloud—except, in those situations where it doesn’t. Whether due to regulations, low-latency requirements, security issues, cost concerns, remote locations or other factors, not all use cases are suitable for a generic, 100% public cloud implementation. Private clouds, hybrid clouds, edge computing, diverse endpoints—whether PC, mobile or IoT— all add to the complexity, while advancements in both 5G and AI increase the demand for robustness amid that complexity. This drove deals for companies such as Corum client Velocidata, a leader in enabling high-volume and high-velocity data movement & processing at scale, acquired by broadband analytics and solution provider OpenVault. It also included companies building solutions at the far edges of the cloud in sectors such as Automotive, like Corum client Phasya, a maker of biometric monitoring software to assess drowsiness, cognitive load and distraction, acquired by Tobii to be folded into its driver monitoring system. This is also fertile ground for middle-market M&A, with precloud infrastructure providers looking to acquire the nimble and innovative companies that can find these opportunities for value in today’s environment.
FOCUSED MANAGED SERVICES
Acquirers of IT services companies are increasingly looking for two things: specialization and predictable, recurring revenue. Companies that combine both are seeing great interest, while those missing one or both may find the landscape more challenging. Although some project-based, one-time revenue can be expected, buyers are increasingly seeking a sustainable base of ongoing revenue, whether from ongoing managed services relationships, long-term contracts, or other methods. This enables the application of metrics such as lifetime value, acquisition cost and churn, typically reserved for SaaS companies. For those who make this leap successfully, the rewards can be significant. That’s especially true when combined with the deep domain knowledge that drives long-term customer relationships regardless of business model—especially across key sectors and ecosystems. Corum clients illustrated this trend strongly, including IBM Maximo specialist BPD Zenith, acquired by Galanthus Partners; Deltek expert Central Consulting, acquired by Aktion Associates; and SCM-focused Avata, acquired by Rockwell Automation. There was also Hong Kong data analytics specialist Velocity Business Solutions, acquired by Singtel subsidiary NCS; and CRI, focused on serving European Union organizations, acquired by Vass.