Software M&A by Vertical and Horizontal Markets

The most active verticals in 3Q12 were Healthcare and Financial Services, accounting for 23% and 20% of total vertical software transactions, respectively.

This excerpt is from our complimentary Q3 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx

Another important determinant of exit valuation is the seller’s market focus and related domain expertise.  We analyzed 3Q12’s median software M&A multiple horizontally and vertically, segregating software company sellers with vertical market solutions (e.g. retail, financial services, telecom, manufacturing, etc.) from sellers with horizontal software solutions (infrastructure, enterprise applications, etc.).

In 3Q12, providers of vertical software accounted for 37% of all software M&A, confirming vertical providers remain attractive acquisition targets primarily because of their deep domain expertise and highly defensible market positions (Figure 32).  The median EV/Revenue exit multiple of these vertical targets has doubled over the same time period, growing from 1.0x in 4Q11 to 2.0x in 2Q12 (Figure 33).

The most active verticals in 3Q12 were Healthcare and Financial Services, accounting for 23% and 20% of total vertical software transactions, respectively (Figure 34).  Both verticals continued to see heightened deal activity, mostly due to regulatory changes, growing governmental scrutiny, and evolving market conditions.  Notable deals in the healthcare sector included Thoma Bravo’s acquisition of Mediware ($156M EV, 2.4x TTM revenue); Nuance Communications acquisition of Quadramed’s HIM Business ($230M EV);  Merge Healthcare’s acquisition of Advanced Clinical Software; and McKesson’s acquisition of MedVentive.  Notable transactions in financial services included: ACI Worldwide’s acquisition of Distra ($49M EV); S&P Capital’s acquisition of Credit Market Analysis; and Global Payments acquisition of Accelerated Payment Technologies($413M EV).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s