Software Industry Mergers, Acquisitions Rise 14 Percent in 2014

Business software had the largest rise in deal volume on a year-over-year basis with a 20 percent improvement, from 343 to 410 transactions.

Mergers and acquisitions (M&A) deal volume in the software industry experienced a 14 percent increase in 2014, with a total of 1,840 transactions, according to a report from Berkery Noyes, an independent midmarket investment bank.

There was also a 19 percent rise in the number of software deals backed by financial sponsors, from 257 to 305, and aggregate value rose 36 percent, from $88.32 billion to $120.18 billion.

Four of the 10 highest value deals in 2014 occurred in the business software segment, which consists of software designed for general business practices and not specific industry markets, making it the best represented segment in the top 10 list.

Business software also had the largest rise in deal volume on a year-over-year basis with a 20 percent improvement, from 343 to 410 transactions.

"2014 was quite a year for the M&A market in terms of both volume and value," Mary Jo Zandy, managing director with Berkery Noyes, told eWEEK. "With generally strong balance sheets and healthy income statements, the major strategic buyers are, by and large, continuing to look for acquisitions that offer additional growth opportunities."

The consumer software segment was responsible for three of the industry's 10 largest deals during the past year.

Two of these three deals were completed by Facebook—WhatsApp, a consumer mobile messaging application, for $19.65 billion, and Oculus VR, a virtual reality technology company, for $2 billion. Facebook's acquisitions of those two companies represented a staggering one-fifth of the industry's aggregate deal value in 2014.

In terms of specific buyers, the infrastructure segment's most active acquirer in 2014, either directly or through an affiliated business, was EMC with six transactions.

EMC has been acquisitive over the past several years, especially as it continues to invest in hybrid cloud solutions as demonstrated through each of EMC's infrastructure deals in 2014: Continuent, Cloudscaling, Maginatics, Spanning Cloud Apps, CloudVolumes and TwinStrata.

Google was another notable acquirer in the infrastructure segment in 2014 with two mobile development-related transactions. The search engine giant picked up Firebase, a cloud-hosted back-end service that helps developers build apps, and Appurify, a mobile app testing platform.

In addition to Firebase, Google completed another cloud-focused deal in the segment with the acquisition of StackDriver, a cloud monitoring service for Amazon Web Services, Rackspace and other cloud environments.

As for the infrastructure software segment, deal volume remained nearly constant between 2013 and 2014. However, there was a 43 percent volume increase in the segment's information and cyber-security subsector, from 65 to 93 transactions.

"We're seeing a lot of business software M&A activity at the moment. One key trend in the segment is the transition from desktop to mobile that many enterprises are implementing," Zandy said. "Corporate IT departments are looking for tools to facilitate this transition, which is a potential reason for the heightened interest. Notable enterprise mobility transactions in 2014 included VMware's acquisition of AirWatch for $1.56 billion and Google's acquisition of Divide."