The year 2017 saw a revival in M&A in both the enterprise software market and the IT services sub-sector after rather a slow 2016 in many segments of the market, and the outlook remains promising according to Hampleton Partners, specialists in M&A advice in technology.
Hampleton points out that change is accelerating in many parts of the market, in a way that requires a response from most of the participants. In enterprise software, companies are shifting more of their budgets towards Software as a service (SaaS) and developments in a whole range of areas such as digital platforms, mobility, blockchain and the internet of things are changing business models in a wide range of areas from commerce to data storage. Investment budgets are only going to grow or many companies to enable them to keep up with these developments, and M&A is bound to play an important part in that.
Cybersecurity is also becoming an increasingly expensive and sophisticated requirement as threats become more complex. Hampleton notes that EV/EBITDA multiples continue to expand reaching a new high of 14.9x in the second half of 2017.
This means that the gentle growth in M&A in the sector last year, with private equity playing a larger part in acquisition activity, is likely to gather strength, with Hampleton especially emphasising that healthcare-related and government and public sector software markets have a promising outlook. Smart logistics and enterprise collaboration look set to maintain momentum as the ongoing migration to cloud fueled a healthy pipeline.
Meanwhile, in IT Services, the market is even more buoyant. Hampleton talks of “exponential growth” in many key segments, aided by digital disruption to the legacy players, in the face of innovation in cloud-based computing, big data analytics and mobile-based services, with growing interest in converged infrastructure. It says that heightened interest in a swathe of security solutions also underpinned the drive to bolster IT services through targeted acquisitions.
The second half of 2017 has especially strong in terms of deal flow in IT services, with the US$30.8bn of deals always three times as high as in the second half of 2016, with dramatic growth in deals from private equity, most notably in IT outsources services. And Hampleton is particularly optimistic about the outlook in this area, saying that strong demand for relevant M&A opportunities will continue to deliver headline deals, as well as a healthy pipeline of lower and mid-market transactions. They stress that far from merely deploying in-house digital capabilities, more and more enterprises look set to accelerate revenue growth from digital services via M&A.