Software Industry Sees Rise in M&A Value

The business software segment, however, experienced a 17 percent quarter-to-quarter decline in volume.

software market and M&A

Six of the highest value software transactions in the mergers and acquisitions (M&A) market year-to-date occurred in September, though volume declined 12 percent over the prior quarter, from 496 to 437 deals, according to Berkery Noyes, an independent midmarket investment bank.

The number of deals year-to-date rose 15 percent compared with the corresponding timeframe in 2013, and aggregate transaction value nearly doubled relative to the previous quarter, from $19.7 billion to $38.8 billion.

The business software segment, which consists of software designed for general business practices and not specific vertical industries, experienced a 17 percent quarter-to-quarter decline in volume.

This came in the aftermath of a 22 percent increase between first and second quarter of the year. The industry's largest financially sponsored deal in third quarter was Vista Equity Partners' acquisition of Tibco Software for $4 billion in the segment.

The report also revealed acquirers are showing an interest in backup software and data recovery as it relates to the cloud, such as Microsoft's acquisition of InMage and EMC's acquisition of TwinStrata in the third quarter of the year.

"Very attractive and large properties have come to market. The universe of acquirers has grown beyond Oracle and SAP," Mary Jo Zandy, managing director from Berkery Noyes, told eWEEK. "Private equity players, such as VISTA, have been acquisitive. And capital markets have enabled them to pay premiums, based upon debt availability."

Deal volume in the infrastructure software segment jumped 9 percent, making it the segment with the largest rise in deal activity.

One associated trend has been strong demand in the identity and access management space. Examples in the third quarter included Gemalto's acquisition of SafeNet for $890 million as well as IBM's acquisitions of Lighthouse Security Group and CrossIdeas.

Regarding other notable acquirers in the segment, HP made a move to better compete against Amazon in the cloud market with the acquisition of Eucalyptus Systems, a provider of open-source software for building private and hybrid enterprise clouds. Eucalyptus' CEO Marten Mickos, who also sold open-source company MySQL to Sun Microsystems in 2008 for $1 billion, will manage HP's cloud business following the transaction.

Deal flow in the consumer software segment decreased 9 percent over the past three months—the same amount of activity in the segment as in the first quarter of the year.

The report noted that an emerging trend generating interest from acquirers involves the Internet of things (IoT), such as Samsung's acquisition SmartThings for a reported $200 million. SmartThings' open platform enables home control and automation devices to be connected in the cloud through a single mobile application. Samsung has been placing more of an emphasis on its mobile offerings of late.

In addition to SmartThings, this trend was demonstrated in the business software segment through Samsung's acquisition of PrinterOn, an enterprise mobile printing platform, during the third quarter.

While Zandy noted while the outlook for the software M&A market looks good and no one expects things to change overnight, if the public equity markets were to decline materially and debt markets tightened, it would take a toll.