Number 1 Deal Killer in Tech M&A

October 2019 Tech M&A Monthly - Introduction

Heidi Owen

Good morning, afternoon, or evening, wherever you are in the world. Welcome to the Corum Tech M&A monthly. My name is Heidi Owen, the new Director of Marketing for Corum Group, and I'll be your host for today.

Before I get to our schedule, I'd like to point out the Q&A sidebar. Feel free to ask us any questions you might have during the presentation. The slide deck will be made available to you and you can email us at anytime at info@corumgroup.com.

So, let's get started. We have a packed agenda starting with our most recent deal announcements for the month of September. Next, we have field reports from Serge Jonnaert and Jim Perkins. After that, we'll go to our quarterly Tech M&A report. Then, we'll finish with a special report with Bruce Milne on the #1 Deal Killer in Tech M&A.

 

BP Logix – Finrock Growth Partners Acquisition

Heidi Owen

Now, without further delay, let's go over some of the recent deals that just closed, starting first with Jeff Brown in Texas.

Jeff Brown

We are really pleased to announce that our friends at BP Logix, providers of low-code business process modeling solutions for rapid application development, had been acquired by Finrock Growth Partners, a private equity firm that acquires and operates businesses in the software sector. The acquisition expands BP Logix's commitment to helping its clients accelerate the automation of their mission critical business processes.

Heidi Owen

That's excellent news. Congrats to the team at BP Logix. Now, let's go to Julius Telaranta in Berlin.

 

BizView Systems – insightsoftware Acquisition

Julius Telarant

I'm excited to announce that our client, BizView Systems has recently been acquired by insightsoftware. Sweden-based BizView Systems provides customers with a unified interface for faster, easier, business planning and forecasting, dashboards, and analytics. With BizView's scalable SaaS solution for performance management, clients have access to state-of-the art UX-intuitive and browser-agnostic products that interact with the world's leading BI platforms such as Qlik and Microsoft Power BI, among others. insightsoftware is a US-based global leader in enterprise resource planning and enterprise performance management reporting solutions. From our client's perspective, the opportunity to barge in with insightsoftware has given BizView the ability to expand their presence globally and enlarge their product offering and capabilities. It's been a real pleasure working with Oscar and the BizView team. We are really proud of this transaction and the result that it has brought for them.

Heidi Owen

Wonderful. Congratulations to Julius and the team at BizView.

 

Corum Group at the WFS Growth and Exist Strategies Conference

Heidi Owen

Let's turn now to the field to hear from Serge Jonnaert on the recent WFS in San Francisco.

Serge Jonnaert

Thank you, Heidi. Just a few weeks ago, I had the pleasure of chairing the Growth and Exit Strategies Conference in San Francisco, produced by the World Financial Symposiums and sponsored by the Venable Law Firm, Software Executive Magazine, and the Corum Group. We covered everything around Tech M&A -- investments, growth strategies, acquisitions, and mergers. The audience was great and very engaged and we had a great roster of guest speakers from Vista Equity, K1, Riverside, Rubicon, Microsoft, Barracuda, Agilent, JP Morgan, and the list goes on. World Financial Symposiums is hosting two more events, one in Chicago on November 12th, and one in Atlanta on December 5th. I urge any tech CEO, founder, or investor to attend this. It's a great event for education, networking, and idea sharing.

Heidi Owen

Thanks, Serge. Corum is the platinum sponsor of the WFS, which also hosted a recent market spotlight on e-Sports. Jim?

 

WFS Market Spotlight on Esport

Jim Perkins

Thanks, Heidi. The recent Esports Market Spotlight was fantastic. We had two of the biggest names in the space: Dan Fiden, president of Cloud9, and Chris Park, CEO of Gen.G. Both Dan and Chris really opened up, providing some incredible insights into the opportunities in this e-sports space. You can watch it on demand at wfs.com.

Heidi Owen

Great. Thanks, Jim.

 

October 2019 Tech M&A Report: Public Markets and Corum Index

Heidi Owen

Next, I'd like to turn it over to Elon Gasper and the Corum Research team for Q3 Tech M&A report.

Elon Gasper

Thanks. We begin with the public markets where US indices set new records in Q3 before dropping back near their start, the S&P Tech index notably down 3%. Chinese indices dropped, Hong Kong's Hang Seng down 9% on political uncertainty, while Japan's Nikkei and France's CAC quarante, each booked a small gain. But with the decade-long US bull market facing no shortage of threats, we urge execs to make use of the open Tech M&A window and its still-high demand chasing a limited supply of sellers.

Our Corum Index for the third quarter caught a slight volume increase in deals and megadeals. Pipeline metrics showed PEs gathering more platforms as worried VCs exited more investments, and buyers fished more deeply in the start-up pool. Amber?

 

October 2019 Tech M&A Report: Megadeals

Amber Stoner

Megadeals are running strong in all enterprise sectors this year. Consumer left behind as the Q3 concentration in Infrastructure helped it match Internet volume and catch up with Vertical too, though those combined in value are still less than spent for the lead sector, Horizontal companies.

Elon Gasper

So, lets sample those Q3 megadeals starting with Infrastructure, where semiconductor giant, Broadcom, having swallowed software giant CA last year, now in Q3 buying the enterprise security assets of veteran, Symantec, for almost $11 billion to renew its unexpected push into enterprise software. This isn't two jigsaw pieces. It's mixing together three whole puzzles which we expect to trigger smaller M&A.

Amber Stoner

Moving on, the Vertical sector books the biggest megadeal of Q3. Fintech Refinitiv, with its many former Thompson Reuters datasets and software tools, acquired for $14 billion by the London Stock Exchange.

Elon Gasper

In the Horizontal, Acquia, commercial arm of the popular open source CMS Drupal, was purchased for a billion by Vista Equity Partners, signaling that open source strategies are viable even for PEs, when pursued skillfully.

Amber Stoner

The Internet sector saw two Asian e-commerce megadeals just last month. Japan's online fashion retailers, Zozo, was taken over for $3.9 billion by the still-independent Yahoo Japan to compete with Amazon and Rakuten, while Chinese e-commerce shopping portal, Kaola, was acquired for $2 billion by Alibaba, expanding its cross-border e-commerce operations.

Elon Gasper

In the consumer sector, PE giant, KKR, bought veteran graphic software developer, Corel, with both its longstanding personal creative products as well as Parallels, Corel's recently-acquired Seattle-based virtualization firm.

Amber Stoner

Finally, Bain Capital spent $2 billion on WPP's data and insight consultancy Kantar, one of three IT services megadeals this year by Private Equity.

Elon Gasper

Aggregate trends show Vertical sales multiples retaking the top spot over Horizontal after running second this last year. Vertical also moved into the top position in EBITDA metrics for the first time since 2015. Other sectors remained in the same order all year, though the increasingly similar Consumer and the Internet sectors have seen their EBITDA metrics converge.

 

October 2019 Tech M&A Report: Horizontals

Elon Gasper

Now, let's take a closer look at these six sectors starting with Horizontal. Stephanie?

Stephanie Jensen

Horizontal sales and EBITDA metrics tracked each other closely over the quarter, declining sharply from record highs in July. These valuations are still extremely high from a historical perspective, but we'll be watching closely to see if the decline continues.

Subsector multiples went down nearly across the board, with only SCM holding its very high sales multiple steady, bolstered by the value being created by advances in Smart Logistics. Payments saw a sharp decline in sales multiples, but a strong increase in EBITDA multiples, a pattern we saw across a number of consumer-influenced sectors.

Payment deals have kept Horizontal in the top spot for megadeal value, but Salesforce has done its part as well. Just days after closing, its $16 billion acquisition of analytics firm, Tableau, the CMR giant reached in another direction, spending $1.4 billion for field service management firm, ClickSoftware.

 

October 2019 Horizontal Tech M&A Report: HR Tools and Speech Recognition

Stephanie Jensen

In the HR subsector, AI-based candidate matching application, Eureka out of Thailand, was bought by talent discovery platform, Outmatch, adding advanced natural language processing and gamification capabilities to its HR suite.

Payroll processor, Paytime, was picked up by business services firm, CBIZ, to strengthen its human capital management offerings.

In San Francisco, programmatic recruitment platform, Perengo, was purchased by talent acquisition tech company, TMP Worldwide, to combine Perengo's AI-driven technology with TMP's recruitment marketing platform.

AI-powered video interviewing solution maker, HireVue, was acquired by The Carlyle Group, which seeks to take advantage of the large company trend of using artificial intelligence to remove bias from hiring decisions.

Speech Recognition technology saw a new round of deals by some big names. Speak.Ai, a voice technology firm based in London, was picked up by Oracle, which is planning to add voice capabilities to its Digital Assistant for business applications.

Voicea, the creator of EVA enterprise voice assistance, was acquired by Cisco to help WebEx catch up in the arena of voice transcription and analytics.

And voice-recognition tech developer, Apprente, was grabbed by McDonald's to optimize the order-taking workflows at the drive-through window, following the fast food giant's purchase of analytics firm, Dynamic Yield earlier this year.

 

October 2019 Horizontal Tech M&A: Data Analytics and Survey SaaS

Stephanie Jensen

And consolidation in the analytics and big data space continues, with Indian machine learning specialist, Lymbyc Solutions, bought for $5.5 million at 5.4 times revenue by technology consultancy, Larsen & Toubro Infotech.

Advanced analytics firm, Arcadia Data, sold its ArcEngine technology assets to big data company, Cloudera, in a push to accelerate its "time-to-insight" for data analytics.

Evaluation software developer, Metacog, was pocketed by CompTIA, a nonprofit trade association for the IT industry that is preparing to launch an AI-based exam and testing platform.

And Corum client, BizView, a Swedish business performance management company, was acquired by ERP specialist, insightsoftware, making its entry into the Nordic market.

Finally, customer experience management company, GetFeedback, was purchased for $68 million by SurveyMonkey to bolster its presence in the enterprise.

 

October 2019 Vertical Tech M&A: Healthcare

Stephanie Jensen

What happened in the Vertical sector, Yasmin?

Yasmin Khodamoradi

Vertical valuation saw sharp uptick in July with multiples in near historic highs. Not all subsectors fared equally though with Real Estate sales multiples hit the hardest, dropping 25% for the quarter. On the other end, Financial Services saw double-digit percent increases in both sales and EBITDA multiples.

Although healthcare multiples declined this quarter, deal flow continued as life sciences instruments maker, BioTek Instruments was acquired for $1.2 billion by Agilent Technologies to strengthen its position in the live-cell analysis market. Agilent Technologies was one of our panelists at the WFS Conference in San Francisco last month, following its acquisition of Corum client, Genohm.

Healthcare companies also showed continued interest in acquiring machine learning capabilities. For instance, AI-based clinical trial solutions provider, Comprehend Systems, was bought by clinical data analytics company, Saama Technologies.

And AI-driven health analytics platform, VitreosHealth, was acquired for $36.5 million by HMS to enhance its predictive modeling and data analysis capabilities.

 

October 2019 Tech M&A: Financial Services and Energy Management

Yasmin Khodamoradi

In the Financial Services sector, Logical Glue, which provides machine-learning credit decision and underwriting SaaS, was bought by banking software giant, Temenos, for $15 million.

And in September, AI-based data and content analytics SaaS, Selerity, was bought by financial markets platform, Dealogic.

The Energy sector also demonstrated demand for AI as energy insights platform, Ecotagious, was bought by Rubicon-backed, Uplight, in its fifth acquisition this year.

Asset optimization software developer, Aspen Technology, picked up UK-based enterprise visualization solution, Sabisu, and paid $78 million for IoT analytics infrastructure firm, Mnubo, to enhance its AI and IoT expertise.

Also, real-time data and intelligence provider, Genscape, was bought for $364 million by risk management specialists, Verisk Analytics through its subsidiary Wood Mackenzie.

 

October 2019 Tech M&A: A/E/C and Real Estate

Yasmin Khodamoradi

In the A/E/C space, simulation firm, Livermore Software Technology Corporation, was acquired for $775 million by ANSYS to improve its simulated safety testing capabilities, particularly in the automotive sector.

And German construction software maker, RIB Software, extended its international footprint with the acquisitions of U.S. CAD for $26 million and Dubai-based project management and cost planning SaaS provider, Construction Computer Software for $31.5 million.

In real estate, data aggregation platform, Real Factors, was picked up by Vista-owned data transformation software firm, 7Park Data, to expand into commercial real estate, and predictive analytics platforms, SmartZip Analytics was bought by Constellation Real Estate, closely following its acquisition of Offrs.com, another predictive analytics and lead generation firm.

 

October 2019 Consumer Sector Tech M&A Report – Core Gaming

Yasmin Khodamoradi

What happened in the Consumer sector?

Billy Hao

Consumer sales multiples dropped to levels last seen in 2017, but EBITDA multiples continued their slow climb up from their February lows. The shift of priorities from revenue to profitability tracks the decline in US consumer confidence metrics since the spring.

In the Consumer subsectors, this trend was strongest in Core Gaming, where sales multiples dropped by a third while EBITDA multiples increased by the same amount.

Deal flow in that sector continued, with the Italian racing games developer, Milestone, purchased for $62.5 million dollars by German media company, Koch Media. Gunfire Games was bought by Swedish game developer, THQ Nordic, which is seeking to strengthen its footprint in the US. Insomniac, maker of some of the most popular PlayStation titles from Spyro the Dragon to Spiderman, was officially brought into the PlayStation family by Sony. Another less successful studio, Telltale Games, was brought back from the dead and acquired by holding company, LCG Entertainment, which plans to re-release select games from the studio's back catalog, a reminder that in today's tech M&A market, size and company health are not necessarily barriers to acquisition.

 

October 2019 Report: Mobile Games and Streaming Services M&A Deals

Billy Hao

In the Mobile Games subsector, Finnish developer, Seriously, maker of the game "Best Fiends," was bought for a reported $275 million by Israeli social casino gaming giant, Playtika, its largest acquisition since it was acquired by Chinese private equity three years ago.

 And in France, Green Panda Games was bought by Ubisoft to strengthen its position in the emerging "hyper- casual" game segment.

The streaming segment also saw gaming M&A, with game streaming app developers, Streamlabs, snapped up for $89 million by Logitech, giving the gaming peripheral maker software to go with its hardware, already in wide use by streamers.

And in sports streaming, Dublin-based live streaming service, RugbyPass, was purchased for $40 million by Sri Lankan Sky Television and Radio Network to reach the under-served markets.

 

October 2019 Tech M&A Report: Online Education, Internet Trends and Megadeals

Billy Hao

In online education, online coding bootcamp, Thinkful, was acquired for $80 million and 5.7 times revenue by Chegg, which cited its direct-to-consumer strategy as a key synergy.

Finally, in the US, tutor management SaaS, Clark was pocketed by New York-based education startup, Noodle.

Billy Hao

How did the Internet section fare, Yuliya?

Yuliya Shnepa

Internet sales metrics were down a bit for the quarter, but still within the range we have seen all year. EBITDA metrics increased slightly, showing the same moment of priorities toward profitability that we saw in the Consumer sector, and likely for the same reasons.

Travel and Leisure led the trend among Internet subsectors, with sales multiples declining 15% and EBITDA multiples increasing 25%, while e-commerce dropped in both metrics and social network value remained steady.

Assurance IQ, a consumer-facing AI-enabled platform for insurance was acquired for $2.4 billion by insurance company, Prudential Financial, to up its digital game and compete with new entrants into its space.

There were a number of unique marketplace acquisitions across the Internet sector. Music production marketplace, SoundBetter, was bought by Spotify to offset its hefty royalty costs by diversifying its revenue sources.

 

October 2019 Food Delivery, Travel Tech and IT Services M&A Report

Yuliya Shnepa

The food delivery subsectors saw a move away from the traditional consumer focus as City Pantry, a B2B catering marketplace out of the UK, was picked up for $20 million by Just Eat, which seeks to enter the corporate market.

Other marketplaces across the traditionally active Travel subsector include vacation rental website, CanadaStays, which was acquired by its strategic partner, Expedia, to boost its vacation rental presence in that country.

Luggage storage network, Knock Knock City, was stowed by its Danish competitor, LuggageHero, to expand its network of on-demand storage locations.

And boater bookings app, SlipSure, was acquired by a Snag-A-Slip, an online boat slip reservation marketplace, seeking to expand its selection of reservation types.

Yuliya Shnepa

How did the IT services market do, Billy?

Billy Hao

In Q3, sales and EBITDA multiples in the Developed markets stayed within a narrow band near all-time highs, while, EBITA valuations of Emerging markets dipped from last year's top. In reflection of our Focused IT Services trend, we spotted deals across the Sage, Microsoft, and Salesforce systems integration domains.

 

October 2019 M&A: Focused Integrators – Sage and Microsoft

Billy Hao

In the Sage ecosystem, Southeast Computer Solutions, a Miami-based services firm, was bought by full-service technology and business consultancy Net at Work, expanding its reach into Latin America and the Caribbean.

Sage systems integrator, United Solutions Group, narrowed its focus to only Real Estate and Construction, selling the rest of it's CRM and ERP practice to B2B Sage integrator Acumen Information Systems, which focuses on the Distribution and Manufacturing sectors.

In the Microsoft ecosystem, Germany-based Orange Networks was purchased by network and security systems provider, Logicalis Group, for its German footprint.

Dynamics GP consulting group, Advanced Integrators, based in Oklahoma, was bought by ERP consulting and software development firm, Njevity. And Arth Systems, based in Microsoft's backyard in Redmond, was acquired by product engineering and services firm, Xoriant.

 

October 2019 Tech M&A: Accenture and Healthcare IT Deals

Billy Hao

Accenture made four services deals in Q3, bolstering its growing Applied Intelligence business, rolling up US Fairway Technologies, Spanish Pragsis Bidoop, British Parker Fitzgerald, and Australian Analytics8.

In the healthcare IT domain, we saw significant private equity interest. Outsourced services provider, Convey was bought from New Mountain Capital by TPG Capital. Three weeks later, New Mountain Capital acquired another Health IT company, systems integrator Emids Technologies.

And PE-backed revenue cycle management firm iMedX, rolled up two healthcare analytics and RCM specialists, Prevalent and Axcension, to launch an advanced analytics platform.

 

October 2019 Infrastructure M&A Report: Endpoint Security

Billy Hao

What happened in Infrastructure?

Matt Haberlach

Infrastructure sales multiples remained stable throughout the quarter, following a pattern that started in Q4 last year. EBITDA metrics have moved around a little more, creeping upward since mid-year.

Most subsector saw both multiples drop in value, though, with the overall sector held up by stability of the Endpoint subsector and the strength of various core technologies under the "Other" banner.

Endpoint leaders, VMware, spent over $5 billion last month to wrap up Pivotal, a cloud application developer, and cybersecurity firm, Carbon Black, bringing VMware to eight deals so far this year.

Elsewhere in the endpoint security sphere, the tech giant, Hewlett-Packard, picked up Bromium, a startup that powers HP's Sure Click security system.

Mac endpoint solutions startup, Digita Security, was acquired by iOS deployment and management company, JAMF Software, its third acquisition in less than a year.

And in Madrid, PEDM software maker, Simarks Software, was bought for $1.5 million by Parisian cybersecurity company, WALLIX.

 

Network Performance and Cloud Storage Tech M&A Report

Matt Haberlach

In the network performance & management area, network analytics company, Entuity, was acquired by data center hardware maintenance company, Park Place Technologies, and VMware snagged two companies: intent-based network verification starup, Veriflow and Uhana, a developer of AI-based engines for mobile network optimization.

The quiet data storage subsector was disturbed by major players as Google snapped up enterprise file storage provider, Elastifile, to bolster the storage capabilities of its Cloud Platform. Amazon then barged in, acquiring enterprise flash storage startup, E8 Storage for AWS. Microsoft followed soon after with the acquisition of Movere, a Seattle-area cloud migration firm, to boost the Azure Migrate service.

 

October 2019 M&A: IoT and Application Lifecycle Management

Matt Haberlach

They trend of high M&A activity in IoT continued as AI-based IoT security platform, Zingbox, was bought for $75 million and 15 times revenue by Palo Alto Networks, making it the fourth security startup the company has purchased this year.

We saw global deals in the Application Lifecycle Management subsector as Finnish mobile test specialist Bitbar Technologies was swallowed by testing technology provider, SmartBear Software. Israeli open-source platform TestProject was nabbed by software testing company, Tricentis. And in the Netherlands, performance specialist, Ymore, was acquired by Sentia, a high-end cloud solutions provider.

Elon Gasper

And that's Q3, with just one more quarter before the 2020s. You ready?

Bruce Milne

Thanks, Elon. Great report on the past quarter. Wonderful to see so many companies we work with in our global Tech M&A report, and our top 10 disruptive trends, cosponsors and speakers alike, Vista, KKR, Accenture, IBM, Salesforce, SAP, Google, Microsoft, and so many more.

 

Special Report: The #1 Deal Killer in Tech M&A

Bruce Milne

Last to report on, it all sounds good, but I'm concerned. I'm worried for many of my friends and colleagues. They're going to fall prey the biggest single deal killer we are seeing today. That is, they're going to miss the mark entirely to sell their company. For many, their last chance to sell. Seriously, let me explain. In Tech M&A, it's all about timing. I just finished my second tour of Asia and Europe this year meeting with many new buyers, buyers no one's heard of speaking before record audiences about record valuations.

My biggest takeaway is that there's enough signs in our industry, public markets, and politics, that you need to pay very, very careful attention to this market.

Too many firms will wait too long to sell. Time is not on your side. It takes time to repair. Time to research, the buyer's time to go to market. Time to let the auction process unfold. Time to negotiate, to go through the due diligence process to get the optimal outcome we deserve. Look, windows of time open and close. Yesterday's unsellable company is suddenly hot due to a new disruptive trend, like say, blue collar tech or a high flyer, worth a fortune is suddenly unsellable, the market consolidated. Are you going to miss your window of opportunity to sell?

In a speech early this year on estate planning with co-sponsor Perkins Coie, I talked about the Boomers Conundrum. Boomers need to be extra careful relative to market timing today. I'm even more worried now. Let me explain. When M&A market is turned, they fall very hard -- half -- half the buyers disappear, valuations dropped by 40% in only 18 months. And forget about getting that all cash offer that everybody wants. Now, a typical recovery cycle is seven years. Seven years until the next peak to sell. If you're a baby boomer, do you have that much time, seven years to wait for the next peak? No, you definitely don't. That's a conundrum. Time is not on your side. We're 10 years into a seven-year economic cycle with peak valuations. What are you waiting for? Too many firms are going to run out of time. Don't be one of them.