Selected M&A Deals for the Week of 5/11/2012 – 5/17/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of May 11, 2012 – May 17, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

• • DOCOMO Deutschland GmbH’s acquisition of Buongiorno SpA [for an Enterprise Value (EV) of $348.9M, implying an EV/Rev multiple of 1.16x]
• • Yell Group’s acquisition of Moonfruit Limited [for an EV of $28.6M]
• • HIS Inc’s acquisition of Xedar Corporation [for an EV of $28M]
• • iCar Asia’s acquisition of www.mobil123.com [for an EV of $2.1M]
• • Zynga Inc’s acquisition of Wild Needle, Inc
• • LivePerson Inc’s acquisition of Amadesa Inc
• • Equinix Inc’s acquisition of ancotel GmbH

Selected M&A Deals for the Week of 5/4/2012 – 5/11/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of May 4, 2012 – May 11, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

 

• •Lagardere Active SAS’s acquisition of LeGuide.com for an Enterprise Value (EV) of $76.54M, implying an EV/Rev multiple of 2.07x
• •Sonda’s acquisition of Elucid Solutions for an EV of $72.71M, implying and EV/Rev multiple of 1.16x

• •Formpipe Software’s acquisition of Traen, for en EV of $44.0M, implying an EV/Rev multiple of 1.4x
• •Ritchie Bros acquisition of AssetNation, for an EV of $64M
• •Fair Isaac Corp’s acquisition of Entiera
• •Synopsys Inc’s acquisition of RSoft Design Group
• •Samsung Electronics’ acquisition of mSpot Inc
• •Citrix Systems’ acquisition of The Citrix XenClient Enterprise Group

 

Internet M&A Deal Volume and Valuations

After a record breaking 2010, Internet exits jumped 27% in 2011, to 794 M&A transactions.  On a quarterly basis, Internet deals accelerated from 1Q11 to 3Q11, then slowed in 4Q11 (Figure 57).  The number of Internet M&A transactions was nearly half the total number of on-premise software M&A deals in 2011, compared to only one third as many in 2010.

Internet TTM exit valuations rose in each quarter of 2011.  The median TTM EV/Revenue exit multiple for Internet providers in 4Q11 was 2.8x, up sharply from 1.8x in 4Q10 (Figure 58).  There were three mega deals in 2011: eBay’s acquisition of GSI Commerce ($2.1 billion EV, 1.6x TTM revenue); Verizon’s acquisition of Terremark Worldwide ($1.8 billion EV, 5.4x TTM revenue).

The primary driver behind eBay’s acquisition of GSI Commerce was its need to grow its large merchant business as its SMB business slows.  Following its acquisitions of mobile solution providers CriticalPath, Milo and RedLaser, eBay is investing heavily into multi-channel commerce, seeking to leverage its PayPal asset as much as possible.

The Verizon and CenturyLink acquisitions were driven, in both cases, by a legacy telecom’s strong need for cloud hosting infrastructure.  A similar, but considerably smaller, deal was Time Warner’s purchase of NaviSite ($326 million EV, 2.5x TTM revenue), in February.

Smaller Internet providers were clearly in demand by acquirers in 2011. Targets with revenue less than $100 million received a median EV/Revenue multiple of 2.8x, nearly 30% more than the median 2.2x paid to those with revenue greater than $100 million (Figure 59).  Smaller, faster growing Internet companies with market traction and cutting edge technologies were deemed highly strategic and worthy of a premium by many buyers. Case in point: DG FastChannel’s acquisition of MediaMind.  DG FastChannel needed online advertising expertise badly, as advertisers demanded solutions that could simultaneously manage multi-channel campaigns. Another highly strategic Internet deal: AOL’s acquisition of HuffingtonPost, which came at a time when CEO Tim Armstrong aggressively sought to remake AOL into an online content business, monetized through advertisements.

Four of the ten product categories we track in the Internet sector recorded over 100 M&A transactions each in 2011: Ad Tech & Services (185), eCommerce (162), Content (119) and Social Technologies (112).  Ad Tech & Services transactions were up 107% from 2010’s tally, in no small part due to considerable consolidation among daily deal sites following the successes of Groupon and Living Social.  The consolidation was largely driven by the critical need to rapidly achieve scale in an industry with low barriers to entry.

Deal activity in the Ad Tech & Services category was also driven by a shift in Internet advertising to audience buying and demand side platforms (DSPs), which require advanced tools to aggregate and analyze data in order to serve up the most personalized ad possible.  Notable transactions in this product category include Google’s acquisition of AdMeld ($400 million EV); ValueClick’s acquisition of Dotomi ($278 million EV); Demand Media’s acquisition of IndieClick Media Group ($14 million EV); Google’s acquisition of Daily Deal GmbH (transaction details undisclosed); comScore’s purchase of AdXpose ($19 million EV); Local.com’s acquisition of Screaming Media Group ($33 million EV, 13.8x TTM revenue); and Yahoo’s purchase of Interclick ($251 million EV, 2.0x TTM revenue).  Digital ad agencies, seeking to supplement creative services with technology enabled services, were active buyers of Ad-Tech Internet companies as well: VivaKi acquired Big Fuel Communications; WPP Digital bought Rockfish Interactive; and iCrossing acquired Wallaby Group.

The e-Commerce Internet category accounted for 162 M&A transactions in 2011, the second highest among all Internet categories, and 36% higher than its 2010 total of 119.  Consolidation in this category was driven by bricks and mortar retailers and others seeking to capitalize on the growing consumer shift to online retail, and by acquirers seeking advanced technologies for retail personalization and supply chain optimization. Unsurprisingly, eBay was the most active buyer in this category, gobbling up 13 consumer retail Internet companies in 2011.  Google and Groupon each made two e-Commerce acquisitions.

The third most active Internet category was Social Technology, which recorded 112 M&A transactions in 2011.  Buyers sought to tap the extraordinary ability of social networks to promote brand awareness and create consumer demand.   Salesforce, after publicly declaring enterprise social media as one of three key strategic objectives for their next generation cloud platform, acquired Radian6 ($350 million EV); Constant Contact bought Bantam Networks ($15 million EV) 13 days after stating on an earnings call it would be moving aggressively into social media; SuccessFactors acquired Jambok, following its 2Q10 acquisition of enterprise social network provider CubeTree ($49 million EV); Adobe purchased Demdex (transaction details undisclosed) to add behavioral targeting capabilities to Adobe’s Online Marketing Suite, acquired with Omniture in 3Q09; and Glam Media bought Ning ($150 million EV estimate), a social networking platform that enabled consumers to quickly create social media groups around any area of common interest.

SEG Publishes Its Q1 2012 Software Industry Financial Report

SaaS M&A Valuations Soar to New Post Recession High, as Software and Internet Exit Valuations Soften; Public Software Company Revenue Growth Slows but Market Valuations Remain Healthy For Now; IPOs Post Stellar Results

Software Equity Group’s complimentary 1Q12 Software Industry Financial Report is now available for download. Our 1Q12 Report provides the facts, data and insight you need to keep your finger on the software industry’s pulse.  We’ve assessed how public software, Internet and SaaS companies performed in Q1; how they’ve performed amid the current macro environment and technological disruptions driven by mobile and cloud computing and how their stock prices and market valuations have responded.  Our 1Q12 Report also enumerates and analyzes the software IPOs through 2012 and measures M&A deal volume and exit valuations overall and by software product category.

Report Highlights:

• 64 SaaS companies were acquired in 1Q12, accounting for 16% of all software transactions and up from 3% only two years ago. The SaaS median exit multiple reached a new high.  What SaaS product categories are on fire?
• 1Q12’s median EV/Revenue exit multiple was 1.9x for traditional, on-premise software companies.  The median only tells part of the story, how many companies achieved exit multiples above 5.0x?  Below 1.0x?
• Internet M&A transactions in 1Q12 increased 25% YoY.  What Internet product categories are leading the charge and why?
• Among the on-premise software product categories we track, which accounted for a whopping 20% of all software M&A deals in Q1, but fetched a median exit multiple of only 1.6x, despite one high profile exit at 20x!!!
• Are investors rewarding revenue growth over EBITDA margin in this macro environment?  Our analysis paints a clear picture of what investors want.
• The TTM revenue growth rates of public SaaS companies grew for the fifth consecutive quarter in 1Q12.  How are SaaS companies investing to fuel this growth, and what’s the EBITDA impact?
• The IPO market was especially robust in 1Q12.  Find out who the top performers were and how they’ve fared post-IPO.

Software Equity Group’s Quarterly and Monthly Reports are widely recognized as the best way to keep your finger on the financial pulse of the software industry.  As testament, our reports are now read and relied upon by more than twenty thousand software industry executives, entrepreneurs, venture capitalists, private equity investors and professional advisors in 72 countries around the globe.  Shouldn’t you know what they know?

To obtain your complimentary copy, please visit: http://www.softwareequity.com/research_quarterly_reports.aspx.

Cordially,

Kris Beible
Director, Business Development

About Our Firm
Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors.  Founded in 1992, our firm has guided and advised companies on five continents, including privately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Africa and Israel.  We have represented public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges.  Software Equity Group also advises several of the world’s leading private equity firms.  We have been ranked among the top ten investment banks worldwide for application software mergers and acquisitions.

Public Internet Company Market Valuations: By Product Category

Enterprise valuations of companies comprising the SEG Internet Index varied widely by Internet category in 4Q11 (Figure 26).  Despite a 15% drop YoY, Internet Travel companies closed 4Q11 with the highest median EV/Revenue multiple, 5.5x.  The category benefitted from the strength of HomeAway (11.4x), newly listed in 2011, and Ctrip (6.4x).

The Internet Services category was also favored by investors, closing 4Q11 with a median 5.1x EV/Revenue, a 59% YoY improvement.  Five high flyers in the Internet Services category finished 4Q11 with median EV/Revenue multiples above 10x:  Qihoo (14.0x), Jive Software (12.5x), Zillow (12.2x) and Angie’s List (11.3x).  All but Qihoo went public in 2011.

The Media category saw the largest YoY decline in EV/Revenue, closing 4Q11 with a median multiple of 1.8x, 36% lower than a year earlier.  The decline in median EV/Revenue of this Internet category at the close of 4Q11 was in part attributable to the falling market values of DemandMedia (1.6x), AOL (0.5x) and Local.com (0.7x).  But the Internet stock with the largest negative impact on the category’s median multiple in 2011 was Netflix.  Following its confounding decisions to raise prices and split its DVD mail and online streaming businesses, the EV/Rev multiple of Netflix went into free fall, nose diving from a 5.4x EV/Revenue multiple in 2Q11 to 1.4x at the close of 4Q11.

Software Equity Group Releases its 1Q12 Software Industry Financial Report

SaaS M&A Valuations Soar to New Post Recession High, as Software and Internet Exit Valuations Soften; Public Software Company Revenue Growth Slows but Market Valuations Remain Healthy For Now; IPOs Post Stellar Results

Software Equity Group’s complimentary 1Q12 Software Industry Equity Report is now available for download. Our 1Q12 Report provides the facts, data and insight you need to keep your finger on the software industry’s pulse.  We’ve assessed how public software, Internet and SaaS companies performed in Q1; how they’ve performed amid the current macro environment and technological disruptions driven by mobile and cloud computing and how their stock prices and market valuations have responded.  Our 1Q12 Report also enumerates and analyzes the software IPOs through 2012 and measures M&A deal volume and exit valuations overall and by software product category.

Report Highlights:

• •64 SaaS companies were acquired in 1Q12, accounting for 16% of all software transactions and up from 3% only two years ago. The SaaS median exit multiple reached a new high.  What SaaS product categories are on fire?
• •1Q12’s median EV/Revenue exit multiple was 1.9x for traditional, on-premise software companies.  The median only tells part of the story, how many companies achieved exit multiples above 5.0x?  Below 1.0x?
• •Internet M&A transactions in 1Q12 increased 25% YoY.  What Internet product categories are leading the charge and why?
• •Among the on-premise software product categories we track, which accounted for a whopping 20% of all software M&A deals in Q1, but fetched a median exit multiple of only 1.6x, despite one high profile exit at 20x!!!
• •Are investors rewarding revenue growth over EBITDA margin in this macro environment?  Our analysis paints a clear picture of what investors want.
• •The TTM revenue growth rates of public SaaS companies grew for the fifth consecutive quarter in 1Q12.  How are SaaS companies investing to fuel this growth, and what’s the EBITDA impact?
• •The IPO market was especially robust in 1Q12.  Find out who the top performers were and how they’ve fared post-IPO.

Software Equity Group’s Quarterly and Monthly Reports are widely recognized as the best way to keep your finger on the financial pulse of the software industry.  As testament, our reports are now read and relied upon by more than twenty thousand software industry executives, entrepreneurs, venture capitalists, private equity investors and professional advisors in 72 countries around the globe.  Shouldn’t you know what they know?

To obtain your complimentary copy, please visit: http://www.softwareequity.com/research_quarterly_reports.aspx.

Cordially,

Kris Beible
Director, Business Development

About Our Firm
Software Equity Group is an investment bank and M&A advisory serving the software and technology sectors.  Founded in 1992, our firm has guided and advised companies on five continents, including privately-held software and technology companies in the United States, Canada, Europe, Asia Pacific, Africa and Israel.  We have represented public companies listed on the NASDAQ, NYSE, American, Toronto, London and Euronext exchanges.  Software Equity Group also advises several of the world’s leading private equity firms.  We have been ranked among the top ten investment banks worldwide for application software mergers and acquisitions.

Selected M&A Deals for the Week of 4/30/2012 – 5/4/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of April 27, 2012 – May 4, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

 

• •Open Text Corp’s (NasdaqGS:OTEX) acquisition of EasyLink Services International Corporation (NasdaqCM:ESIC) for an Enterprise Value (EV) of $297.07 million, implying an EV/Rev multiple of 1.6x
• •Francisco Partners Management LLC’s acquisition of Kewill plc (LSE:KWL) for an EV of $115.74 million, implying an EV/Rev multiple of 1.23x
• •Gree International Inc’s acquisition of Funzio Inc for an EV of $210.0 million
• •LinkedIn Corporation’s (NYSE:LNKD) acquisition of SlideShare Inc for an EV of $118.75 million
• •Zillow Inc’s (NasdaqGS:Z) acquisition of RentJuice Corporation for an EV of $40 million
• •Cisco Systems Inc’s (NasdaqGS:CSCO) acquisition of Truviso Inc

 

Public Internet Company Market Valuations

The median EV/Revenue multiple for the 90 public companies comprising the SEG Internet Index rose to 2.9x in 2011, up 26% from 2010’s 2.3x and 45% from 2009’s 2.0x.  Indeed, the 2.9x median valuation was the highest SEG Internet Index multiple since 2007’s 3.0x.  When analyzed quarterly, the median EV/Revenue Internet multiple behaved similarly to the market valuations of public software and SaaS companies in our tracking indexes – peaking in 2Q11, then declining sequentially in 3Q11 and 4Q11 (Figures 21 and 22).

The SEG Internet Index had the widest range of median EV/Revenue multiples of the three SEG indices, ranging from a high of 22.1x (Baidu), to a low of 0.14x (Overstock.com) (Figure 23).

Fourteen public Internet companies had EV/Revenue multiples of 8.0x or higher at the close of 4Q11 – eight were foreign entities, and six were domestic.  The median TTM revenue growth of these investor darlings was eight times the growth rate of the 21 companies that closed 4Q11 with a median valuation below 1.0x, and the median EBITDA margin of the market outperformers was 60% greater than the underachievers.

Early in 2011, China-based Internet companies were the darlings of investors. But in 3Q11 and 4Q11, valuations of Chinese Internet companies fell victim to reports of a slowing domestic economy and accounting irregularities. In 4Q11,
the eighteen companies in our SEG Internet Index with headquarters in China posted a median EV/Revenue multiple of 3.7x, down more than 50% from the median 7.5x valuation they posted in 2Q11 (Figure 24).

The median market multiple of North American Internet companies, however, exhibited modest growth in EV/Revenue in 4Q11, advancing to 2.6x from 2.4x in 3Q11.  And although the multiple differential narrowed, Chinese companies still finished 4Q11 with a median EV/Revenue 42% higher than their North American based peers.

Throughout most of 2011, Internet companies with revenue greater than $1 billion received the highest median EV/Revenue, benefiting from their market dominance and investors preference for strong balance sheets and stability (Figure 25).

That didn’t mean speculation was entirely abated. The smallest (as measured by annual revenue) Internet companies saw their median TTM  EV/Revenue multiple jump 35% YoY in 4Q11, as Internet excitement mounted following LinkedIn’s successful IPO.

M&A Valuations by Software Product Category

While a software company’s target market, revenue, equity structure and delivery model can demonstrably impact its exit valuation, the nature of it product offering – its software product category – continued to be the single most important M&A valuation driver in 2011.  For most software product categories, there is often an insufficient number of transactions each quarter that publicly report both seller TTM revenue and buyer purchase price, essential in determining the median exit value for the category.  Consequently, we aggregate the data each quarter for each category on a TTM basis.  As a result, it may take several quarters to detect changing product category valuation trends, as certain outlier transactions consummated nine or twelve months ago may continue to have a residual impact on their product category multiples.

Among the 27 product categories we tracked in 2011, ten had both sufficient deal activity and deal data to ascertain a TTM revenue multiple (Figure 52).  Software company sellers focused on Messaging, Conferencing & Communications garnered a median 3.2x TTM revenue exit multiple in 2011, the highest of any category.  Particularly noteworthy here were Microsoft’s acquisition of Skype ($9.2 billion, 10.6 TTM revenue), and USA Mobility’s purchase of Amcom Software ($163 million, 3.2x TTM revenue).  Some industry analysts suggested Microsoft overpaid, but Skype offered Microsoft the ability to functionally enhance its Xbox, Windows Phone, Kinect, Office 365 and other Live product lines. The ROI outcome will depend largely on Microsoft’s ability to successfully integrate and leverage Skype in these various arenas, as well as more successfully monetize Skype’s business model.

Security software, last year’s top product category in terms of median exit multiple, sank to 2.4x in 2011 from 3.7x the year prior.  In fairness, 2010 was characterized by an array of high profile, strategic acquisitions addressing such hot arenas as cloud infrastructure security (e.g., Juniper Networks’ acquisition of Altor Networks for $95 million, an estimated 6.3x TTM revenue  multiple), and smartphone security (e.g., Symantec’s acquisition of Gaurdian Edge for $73 million, a 3.9x TTM revenue).

Regular readers of our reports will note a drastic change in the 2011 median TTM exit multiple for the CRM, Marketing and Sales product category, which plunged to 1.7x from 3.1x in 2010.  The sharp drop occurred after we deleted and separately reported the median exit multiple for SaaS providers of hosted CRM/Sales/Marketing solutions (e.g., Salesforce.com), which have enjoyed increased acceptance and success among both enterprise and SMB customers at the expense of their behind-the firewall counterparts.  The few remaining on-premise CRM software providers are being acquired for their customers and cash flow, assets that yield far lower multiples.

The HR & Workforce Management product category was also an early migrator to SaaS, effectively eliminating the category in the on-premise software sector.  In 2010, the HR & Workforce Management product category posted a median TTM revenue exit multiple of 2.5x but after applying our new methodology and excluding SaaS M&A transactions, there were an insufficient number of on-premise HR software deals to produce a statistically credible EV/Revenue multiple.

As for the most active M&A product category in 2011, Mobile software led all others, accounting for 14% of 2011’s transactions (Figure 53).  Mobile computing and mobile applications comprise a somewhat complex and evolving ecosystem, which SEG tracks under seventeen discrete sub-categories.  Of the seventeen, four categories accounted for 53% of the mobile M&A transactions: apps/app stores (16%), marketing (15%), gaming (11%) and advertising (10%).  Given the rapid growth of the mobile market and the complexity of the ecosystem, many public software companies are buying into the space to gain technology and domain competency.

On-premise software providers focused on Financial Services and Healthcare comprised 8% and 7%, respectively, of 2011’s M&A transactions.  These three most active software M&A categories, Mobile, Financial Services and Healthcare, were also the most active in 2010.

Software M&A Valuations

The median software industry exit multiple for all of 2011, measured as a multiple of trailing twelve months revenue, was 2.1x – just slightly above 2010’s median exit multiple of 2.0x and, for the first time in four years, equal to 2007’s pre-recession median M&A exit multiple (Figure 45).  Viewed quarterly, the median exit multiple was highly volatile in 2011, mirroring the volatility of the public markets, reaching 2.5x in 2Q11 before dropping to 1.8x in the final quarter (Figure 46).

Lest every software entrepreneur who reads this report multiply his/her company’s TTM revenue by 2.1 to determine current fair market value, we must emphasize that the 2011 median exit multiple is simply that – a median – the midpoint of a very broad range of exit valuations.  Perhaps more useful is our calculation that in 2011, 21.8% of software M&A deals with an ascertainable exit multiple were valued at a 1.0x EV/Revenue or less, while only 11.8% had a EV/Revenue multiple of 6.0x or greater (Figure 47).

Selected M&A Deals for the Week of 4/20/2012 – 4/27/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of April 20, 2012 through April 27, 2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

 

• • Gartner Australasia Pty. Limited’s acquisition of Ideas International Ltd. (ASX:IDE) for an Enterprise Value (EV) of $14.95 million, implying an EV/Rev multiple of 1.65x
• • Veritas Capital’s acquisition of Thomas Reuters Corporation (Health Care Business) for an Enterprise (EV) value of $1.25 billion
• • Intuit Inc’s (NasdaqGS:INTU) acquisition of Demandforce, Inc for an Enterprise Value (EV) of $423.5 million
• • Dassault Systemes SA’s (ENXTPA:DSY) acquisition of Gemcom Software International Inc for an Enterprise Value (EV) of $360 million
• • MICROS System’s (NasdaqGS:MCRS) acquisition of Torex Retail Holdings Limited for an Enterprise Value of $263.09 million
• • KIT digital Inc’s (NasdaqGS:KITD) acquisition of Hydro Australia Pty Limited for an Enterprise Value (EV) of $14.54 million
• • VMware’s (NYSE:VMW) acquisition of Cetas Software, Inc
• • International Business Machine Corporation’s (NYSE:IBM) acquisition of Vivisimo, Inc

 

Software/SaaS M&A Deal Volume and Spending

There were 1,684 mergers and acquisitions in the U.S. software sector in 2011, aggregating $71.4 billion, compared to 1,642 transactions totaling $52.5 billion in 2010 (Figures 40 and 41). Software M&A transaction volume ramped each of the first three quarters,  reaching a three year quarterly high of 439 transactions in Q3 – the sixth consecutive quarterly increase in software M&A deal volume.  To date, 400 software company exits have been reported for 4Q11, but that will likely rise to 420 since some year-end transactions have yet to be announced (Figure 42).  Even without that adjustment, 2011’s 1,695 M&A deal count was the highest in three years, and only slightly below 2008’s tally.

Aggregate consideration paid in 2011 was $71.4 billion, 32% higher than 2010’s total U.S. software M&A spend of $52.5 billion.  It would be wrong to conclude, however, that if deal volume increased some 3%, while deal dollars grew 36%, exit valuations or average deal size grew dramatically in 2011.  Aggregate software M&A spending fluctuates greatly each quarter and each year primarily because of the presence or absence of a relatively small number of software industry mega-deals (transactions with enterprise values greater than $500 million).  As examples, 2Q11’s aggregate deal spend of about $21 billion included Microsoft’s acquisition of Skype ($9.1 billion, 10.6x TTM revenue) and 3Q11’s $24 billion price tag reflected HP’s acquisition of Autonomy ($10.3 billion, 11.1x TTM revenue). Absent such mega-deals, the aggregate software M&A consideration paid in the first and fourth quarters was $15 billion and $11.5 billion, respectively.

What, then, was the average software M&A price tag in 2011, and why is it important?  Average deal size serves as a barometer of buyers’ level of confidence in the economy and its target market, (i.e., bigger deals = more upside, more risk).  It may also serve as an indicator of rising or falling exit multiples.  Given the significant quarterly fluctuation in software M&A spending each quarter, we believe the most reliable way of tracking average software M&A deal size is to utilize YoY comparisons of TTM data; i.e., aggregate TTM exits divided by aggregate TTM spend.  As such, the trend since 2Q10 is noteworthy.  The average software M&A price tag, measured on a TTM basis, increased each quarter for six consecutive quarters, reaching $42 million in 3Q11, before retreating slightly to $41 million in 4Q11 (Figure 43).

Asked how many software companies they anticipate acquiring in 2012, 16% of the public software company corporate development heads responding to our 2012 Buyers Survey indicated six or more; 17% said they’d likely buy three to five companies, and 64% stated they planned to acquire one to two software companies this year (please see Survey results).  And 61% of our respondents indicated their target deal size for 2012 is in the $10M – $99M range.

Based upon our 2012 Buyer Survey results, and our conversations with a broad array of public software company corporate development heads and private equity managing directors, we anticipate software M&A transaction volume will rise approximately 10% to 1,864 this year, driven primarily by buyers seeking products that will provide strategic leverage, competitive differentiation and new opportunities to grow revenue.  We anticipate the median exit multiple and average deal size will edge up only slightly in 2012.

Public Software Company Market Valuations: By Product Category

While median financial performance metrics are useful for assessing the overall health of the software industry and for comparisons to other economic sectors, a deeper analysis of these key metrics by software product category provides greater insight about the software ecosystem.  By analyzing how public software companies in discrete product categories are performing, we enhance our understanding of market trends, sector health, product lifecycles, IT spending priorities and stock market biases. Perhaps most important, we track this data because the current median valuation of companies comprising a particular software category can weigh heavily when buyers value acquisition targets.

As we’ve noted in past reports, the median EV/Revenue multiples and financial results for a particular software category can be stagnant, or can fluctuate wildly each quarter.  As a result, software category rankings, measured by relative median valuations and financial performance, can also be consistent or volatile each quarter.  That axiom held true, once again, in 2011 (Figure 12).

The SEG Software Index is comprised of 144 public on-premise software companies sorted into 21 software product categories.  Eleven product categories achieved median EV/Revenue multiples in 4Q11 above the median SEG Software EV/Revenue of 2.2x (Figure 13).

The Networking and Network Performance Management product category posted the highest median EV/Revenue multiple, 4.5x, up 44% YoY. Companies comprising the Networking and Network Performance Management product category benefited from strong demand for WAN optimization necessary to rapidly deliver software over cloud- based architectures, and from demands by mobile service providers for solutions to manage the explosion of mobile data. SolarWinds recorded the highest median EV/Revenue of the group at 10.6x, while Allot Communications posted the highest year-over-year revenue growth of 37.5%.

Eight product categories improved their median EV/Revenue in 2011 from a year earlier (Figure 14).  The Video Game category showed signs of life in 2011, boasting the h highest YoY median EV/Revenue growth (55%) of the 21 product categories.  Yet, even after its stellar performance, Video Games finished 4Q11 with the second lowest median EV/Revenue multiple at 1.2x.  But investors are beginning to resonate with video game developers who, after missing the boat, are now launching high upside mobile and social gaming products.

Eleven product categories saw a YoY drop in their EV/Revenue multiple (Figure 12).  The EV/Revenue multiple of software companies comprising the Billing & Service Management category fell by a median 60% despite their 28.8% growth in 4Q11.

The Healthcare product category also declined in YoY median EV/Revenue.  In 4Q10, Healthcare boasted a 3.5x median market valuation, thanks to strong market demand for revenue cycle management, HIPAA compliance solutions and electronic medical records.  By the close of 4Q11, Healthcare’s median EV/Revenue multiple dropped to 2.8x due to concerns about delays in federal funding for hospitals to digitize patient records.

Public Software Company Market Valuations: Overall

The  median enterprise value  to revenue (EV/Revenue) multiple for all public companies comprising the SEG Software Index was 2.4x in 2011, up slightly from 2010’s 2.2x, and markedly better than 2009’s 1.7x.  The 2.4x median EV/Revenue multiple is the highest Software Index multiple since 2007’s 2.6x (Figure 6).  The return to near pre-recession valuation levels reflects investor confidence in the near term prospects of on-premise public software companies relative to other industries and options.

On a quarterly basis, median EV/Revenue multiples of on-premise software companies rose to 2.7x in the first and second quarters, before reversing course and ending Q4 with a modestly lower 2.2x median mulitple (Figures 7 and 8).

At the end of 2010 and early 2011, when industry analysts and economic pundits were predicting a slow but steady economic recovery, smaller public software companies were viewed as well positioned for accelerated growth.  As testament, in 4Q10, the median EV/Revenue multiple of SEG Software Index companies with TTM revenues between $100 million and $200 million was 3.5x, compared to only 2.6x for companies with TTM revenues greater than $1 billion.  However, as economic sentiment soured in 3Q11 and 4Q11, smaller software companies, deemed too risky, were pummeled by investors.  By the close of 4Q11, SEG Index companies with TTM revenues between $100 million and $200 million saw their median EV/Revenue multiple plunge to 1.9x, while the median TTM EV/Revenue of their larger peers remained relatively steady at 2.5x (Figure 9).

Size (i.e., annual revenue) wasn’t the only important determinant of public software company market valuation. We analyzed the median EV/Revenue multiples of SEG Software companies based upon their 2011 TTM revenue growth rates and EBITDA margins.

Companies that grew TTM revenue between 20% and 30% in 2011, and those that grew revenue more than 30%, were awarded median EV/Revenue multiples of 3.3x and 3.5x, respectively – significantly higher than the median 2.4x multiple of the SEG Software Index overall (Figure 10).  Among the outperformers with TTM revenue growth above 30% and high median EV/Revenue multiples: Gree (101.5%, 6.8x), Qlik Technologies (42.0%, 7.1x), Ariba (38.5%, 6.1x), VMWare (34.7%, 10.2x) and F5 Networks (30.6%, 6.8x).

Similarly, highly profitable public software companies with EBITDA margins between 20% and 30%, and those with EBITDA margins greater than 30%, were awarded median EV/Revenue multiples of 2.6x and 3.7x, respectively (Figure 11).  Notable examples included: CheckPoint Software (55.0% EBITDA, 8.5x EV/Rev), Gree (50.8%, 6.8x), ANSYS (49.0%, 7.7x), SolarWinds (47.4%, 10.6x), Rovi Corporation (39.8%, 5.4x) and F5 Networks (32.3%, 6.8x).

It should come as no surprise that many of these fast growing and highly valued public software companies provide enterprise solutions that addressed the top IT spending priorities in 2011: mobility, analytics, virtualization and cloud performance management.

Selected M&A Deals for the Week of 4/13/2012 – 4/20/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of 4/13/2012 – 4/20/2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

•DTS Inc’s (NasdaqGS:DTSI) acquisition of SRS Labs Inc (NasdaqGm:SRSL) for an Enterprise Value (EV) of $114.2 million, implying an EV/Rev multiple of 3.48x
•KLAB’s (TSE:3656) acquisition of Pikkle, Inc. for an Enterprise Value (EV) of $2.18 million, implying an EV/Rev multiple of 3.13x
•Gartner Inc’s (NUSE:IT) acquisition of Ideas International Ltd (ASX:IDE) for an Enterprise Value (EV) of $14.95 million, implying an EV/Rev multiple of 1.65x
•Marlin Equity Partners, LLC acquisition of Openwave Systems Inc. for an Enterprise Value (EV) of $55 million
•IBM’s acquisition of Varicent Software
•Groupon, Inc’s (NasdaqGS:GRPN) acquisition of DITTO.ME, Inc
•Twitter’s acquisition of Hotspots.io

Public Software as a Service (SaaS) M&A Deal Volume and Valuations

Last year at this time, after surveying the corp dev heads of public software, SaaS and Internet companies about their acquisition strategies in 2011, we reported a whopping 131% increase in respondents stating SaaS would be a “very important” acquisition prerequisite when assessing potential targets.  They were true to their word: 200 SaaS companies were acquired in 2011, up 91% from the 105 SaaS providers that exited in 2010.  By comparison, on-premise software M&A volume increased only 7% in 2011.

On a quarterly basis, SaaS M&A transactions ramped steadily, increasing from 39 in 1Q11 to 45 in the second quarter, then to 48 in 3Q11 and finally to 68 4Q11.  All told, SaaS acquisitions accounted for 17.0% of all software industry acquisitions in 4Q11, compared to only 4.5% of all deals just two years ago (Figure 54).

SaaS exit valuations are also ramping.  The median EV/Revenue exit multiple for SaaS providers in 2011 was 3.7x, up moderately from 3.2x in 2010 and 2.7x in 2009.  By comparison with the median 2.1x TTM EV/Revenue exit multiple of on-premise software companies in 2011, the SaaS 2011 exit multiple represents a 76% exit valuation premium (Figure 55).

SaaS exit valuations are also ramping.  The median EV/Revenue exit multiple for SaaS providers in 2011 was 3.7x, up moderately from 3.2x in 2010 and 2.7x in 2009.  By comparison with the median 2.1x TTM EV/Revenue exit multiple of on-premise software companies in 2011, the SaaS 2011 exit multiple represents a 76% exit valuation premium (Figure 55).

Ten SaaS acquisitions in 2011 had reported enterprise values greater than $100 million, including two billion dollar mega deals in Q4: SAP’s acquisition of SuccessFactors ($3.5 billion EV, 12.1x TTM revenue) and Oracles’ acquisition of Rightnow ($1.5 billion EV, 7.0x TTM revenue).  Other notable deals with enterprise values greater than $100 million were IBM’s acquisition of DemandTec ($427 million EV, 4.8x TTM revenue); SuccessFactors acquisition of Plateau Systems ($290 million EV, 4.2x TTM revenue);  Oracle’s acquisition of InQuira ($230 million EV, 4.0x TTM revenue); and Fiserv’s acquisition of CashEdge ($465 million EV, 9.3x TTM revenue). These large SaaS transactions underscore the transition of SaaS in buyers’ minds from “nice to have” to “have to have.”  Large public software companies have unquestionably taken note of growing enterprise adoption of SaaS applications, and the demonstrated preference by the huge but elusive SMB market for SaaS over on-premise software.

Among the discrete SaaS categories we track, CRM earned top honors in 2011, accounting for 17% of all SaaS M&A transactions (Figure 56).

Most notable were Oracle’s acquisition of Rightnow ($1.5 billion EV, 7.0X TTM Revenue); Adobe’s purchase of Demdex; NeuStar’s purchase of TARGUS ($650 million EV, 4.4x TTM Revenue); and Salesforce.com’s acquisition of Model Metrics ($58 million EV).

The HR & Workforce Management product category, in second place, accounted for 10% of all SaaS M&A transactions in 2011 and included SAP’s acquisition of SuccessFactors ($3.5 billion EV, 12.1x TTM Revenue), Callidus Software’s acquisition of Rapid Intake (transaction details undisclosed), SumTotal Systems’ acquisition of GeoLearning (transaction details undisclosed); and ADP’s acquisition of Asparity Decision (transaction details undisclosed).

With fully 46% of respondents to our 2012 Software Company Buyers Survey indicating that it was “very important” or “essential” their targets be “all or substantially SaaS/subscription based” we anticipate SaaS deal volumes and median exit multiples will continue to grow in 2012, most likely 10% to 25%, depending upon the economic climate and the level of enterprise IT spending on hosted solutions.

Public Software as a Service (SaaS) Company Market Valuations: By Product Category

The SEG SaaS Index, consisting of 26 pure play SaaS providers, now includes two distinct subcategories, CRM and Workforce Management, which together account for twelve of the 26 listed SaaS providers.  At the close of 4Q11, public SaaS providers of Workforce Management solutions had a median EV/Revenue multiple of 6.3x, reflecting the importance in a difficult economy of recruiting, selecting, onboarding, compensating and managing a workforce (Figure 20).

The most highly valued companies (EV/Rev) in the Workforce Management product category in 2011 were Cornerstone OnDemand (10.7x), SuccessFactors (6.7x) and Ultimate Software (6.3x).

SaaS providers of CRM solutions garnered less investor enthusiasm, and their median TTM EV/Revenue declined to 2.8x in 4Q11 from 4.0x a year earlier. The standout exceptions were CRM stars Salesorce.com (8.0x) and RightNow (6.3x).

Public Software as a Service (SaaS) Company Market Valuations

In 2011, the median EV/Revenue multiple of the 26 pure-play public SaaS providers comprising our SEG SaaS Index rose markedly to 4.5x, up from 3.6x in 2010 and 2.7x in 2009 (Figures 15 and 16). The 4.5x median multiple was the highest since the heady, pre-Recession days of 2007, when public SaaS companies boasted a median 6.4x EV/Revenue multiple.

There were six SaaS overachievers that closed 2011 with a multiple equal to or greater than that 2007 benchmark of 6.4x (Figure 17). NetSuite’s 11.7x EV/Rev multiple led the pack, as investors applauded its success in the upper tier of the mid-market and recent successful price increase. Not far behind was Cornerstone OnDemand (10.7x), followed by Salesforce.com (8.0x), RealPage (7.5x), SuccessFactors (6.7x) and Concur (6.4x).

It appears investors in 2011 rewarded those SaaS providers that outperformed their peers in growing revenue, but the Street was a bit more circumspect about SaaS than in years past. The six SaaS providers with highest EV/Rev multiples had median TTM revenue growth in 4Q11 of 37% compared to 25.4% median TTM growth for all SaaS companies in the final quarter. What’s interesting is that five of the six saw their EV/Rev multiples actually decline in 4Q11 from a year ealier, even though each had grown its year-over-year TTM revenue growth.

Even more surprising: of the five public SaaS companies that outperformed their peers in 2011 in both median TTM revenue growth and median EBITDA margin, only RealPage achieved a median EV/Revenue multiple above the overall SEG SaaS median, finishing 4Q11 at 7.5x. Underperforming public SaaS companies, with either TTM revenue growth rates or EBITDA margins below that median, drew the ire of investors and posted a median year end EV/Revenue multiple of 2.8x (Figures 18 and 19).

Selected M&A Deals for the Week of 4/6/2012 – 4/13/2012

The table below includes a select list of Software, SaaS, Internet and Mobile M&A transactions for the week of 4/06/12 – 4/13/2012.  For a comprehensive analysis of software industry mergers and acquisitions and public software company financial performance you can download our research reports by visiting http://www.softwareequity.com/research_reports.aspx.  Notable transactions for the week include:

*Facebook’s acquisition of Instagram [for an Enterprise Value (EV) of $1 billion]

*International Business Machine’s (IBM) acquisition of Varicent Software Inc.

Sipa Press SA’a acquisition of DioraNews [for an Enterprise Value (EV) of $988 million, implying an EV/Rev multiple of 0.5x, and a total revenue of $1.98 million]

*SAP AG’s (SAP) acquisition of Syclo LLC

*3M Co’s (MMM) acquisition of CodeRyte, Inc.

*Intuit Inc’s (INTU) acquisition of AisleBuyer LLC

*Citrix Systems, Inc’s (CTXS) acquisition of Podio ApS

SEG Publishes Its April 2012 Monthly Flash Report

Our complimentary April 2012 Flash Report assesses the financial and market performance of more than 250 publicly traded software, SaaS, and Internet companies, sorted by product category. The Report also highlights a selection of the most recent software M&A transactions.

Download the report by visiting: http://www.softwareequity.com/research_flash_reports.aspx

Selected M&A Deals for the Week of 3/30/2012 – 4/5/2012

SEG’s 2012 Software Buyer Survey Results

SEG’s 2012 Software Industry Buyer Survey polled over 200 corporate development executives at the largest software companies around the world about their M&A plans, budgets and thinking for the year ahead.  Collectively, the companies responding to the survey consummated M&A transactions worth billions of dollars in 2011.

View the intriguing results here:  2012 Software Buyer Survey

Selected M&A Deals for the Week of 3/9/2012 – 3/16/2012

Selected M&A Deals for the Week of 3/2/2012 – 3/9/2012

SEG Publishes Its March 2012 Monthly Flash Report

Our complimentary March 2012 Flash Report assesses the financial and market performance of more than 250 publicly traded software, SaaS, and Internet companies, sorted by product category. The Report also highlights a selection of the most recent software M&A transactions.

Download the report by visiting: http://www.softwareequity.com/research_flash_reports.aspx

Selected M&A Deals for the Week of 2/28/2012 – 3/6/2012

SEG-Software Index Networking/Network Performance Mgmt

SEG’s Monthly Flash Reports track the financial performance and valuations of approximately 300 software companies, categorized in nearly 30 product categories across the on-premise software, SaaS and Internet sectors.  This post highlights the performance of the SEG-Internet Index Video Games product category as shown in the SEG December Monthly Flash Report.  To view the performance of dozens of other product categories, download the latest complimentary Monthly Flash Report here: http://www.softwareequity.com/research_flash_reports.aspx

In the month of December, the Networking/Network Performance Mgmt category achieved a median EV/Revenue multiple of 4.4x, TTM Revenue Growth of 20.5%, and EBITDA Margin of 22.8%. Notable companies outperforming their respective category include:

1. On an EV/Revenue multiple basis, SolarWinds Inc. and F5 Networks Inc. outperformed the category with multiples of 10.2x and 6.9x, respectively.
2. On a TTM Revenue Growth basis, Allot Communications Ltd. and F5 Networks outperformed the category with a revenue of 37.6% and 30.6%, respectively.
3. On a TTM EBITDA Margin basis, SolarWinds Inc. and F5 Networks outperformed this category with a margin of 47.4% and 32.3%.

What You Need to Know About Mobile M&A: Trends, Hot Sectors, Deal Structures and More

SEG has considerable domain expertise in the emerging mobile software sector.  As mobile software M&A skyrockets, we aggregated the last two years of M&A data to identify the emerging trends, highly acquisitive buyers, exit multiples, deal drivers and common deal structures.  A few key highlights:

 
* Mobile software M&A volume jumped 153%
* Of the 17 product categories we track, the three most active were Mobile Advertising, Mobile Apps and Mobile Marketing. How did your category perform?
* Active mobile software buyers include:  eBay, RIM, Velti, Opera and Electronic Arts.  Find out who they bought.
* Of the 15 deal structures we included in this presentation, 7 include financial details and exit multiples – who received the highest multiple and was it paid all in cash or earnout?

 

To review this information and more, download our brief deck by clicking here.  If you find this information useful, send us a note as we have additional information we are happy to share and discuss.

Mintz Levin Presents “What You Need to Get Done Now If You Want to Sell Your Company in 2012″

The following link is a great article written by Mintz Levin regarding critical actions a seller should take to expedite the exit process in 2012 and avoid the negative impact of expected tax hikes in 2013 and beyond.

 

http://www.mintz.com/newsletter/2012/Advisories/1667-0212-NAT-COR/index.htm

SEG-Software Index Mobile Solutions/Content

SEG’s Monthly Flash Reports track the financial performance and valuations of approximately 300 software companies, categorized in nearly 30 product categories across the on-premise software, SaaS and Internet sectors.  This post highlights the performance of the SEG-Internet Index Video Games product category as shown in the SEG December Monthly Flash Report.  To view the performance of dozens of other product categories, download the latest complimentary Monthly Flash Report here: http://www.softwareequity.com/research_flash_reports.aspx

In the month of December, the Mobile Solutions/Content category achieved a median EV/Revenue multiple of 1.8x, TTM Revenue Growth of 8.5%, and EBITDA Margin of 6.4%. Notable companies outperforming their respective category include:

1. On an EV/Revenue multiple basis, Gree, Opera, and DigitalGlobe Inc. outperformed the category with multiples of 7.2x, 3.5x and 3.1x, respectively.
2. On a TTM Revenue Growth basis, Trunkbow International Holdings and Gree drastically outperformed the category with a revenue of 117.1% and 101.5%, respectively.
3. On a TTM EBITDA Margin basis, Trunkbow International Holdings and Gree also outperformed this category with a margin of 51.6% and 50.8%, respectively.