TOMASZ TUNGUZ
venture capitalist at redpoint
 

The Blockbuster Software M&A Market of 2018

2018 is a blockbuster year for software M&A multiples. The prices companies fetch relative to their revenues surpass any of those in the past 7 years. Billion-dollar plus acquisitions in 2018 have commanded a median 17.7x trailing enterprise value to revenue multiple. Nothing in the past seven years is close. In fact, there is not a single acquisition in that range.

In 2018, three acquirers have paid greater than 14x trailing multiples, and two have paid greater than 20x trailing. The vibrant M&A market we expected is fructifying.

Growth remains the most important correlating factor to sale price. The strength of the correlation has fallen a bit since we calculated this earlier in the year from 0.72 to 0.68. That small decline is driven by Cisco’s acquisition of Broadsoft earlier in 2018, but does nothing to change the conclusion that acquirers prize growth.

The major forces at play at the beginning of the year remain influential today. Consequently, I expect substantially more acquisitions of the scale and at these multiples through 2018. The corporate tax holiday. The growing sizes of the software market. The desire for continuing growth. The pace of innovation within software. The increasing competition amongst incumbents. A vibrant public market that is continuing to price companies aggressively. As I wrote earlier this week, forward software multiples have reached eight year highs at 8.5x EV/NTM revenues.

It’s a great time to sell a fast growing billion dollar company.

Full data below.

Transaction Price TTM Rev Y/Y Growth Gross Margin Year of Sale EV EV/TTM
Microsoft/Github* 7500 300 50% 2018 7350 24.5
Salesforce/Mulesoft 6500 297 58% 73% 2018 6296 21.2
Workday/Adaptiveinsights 1550 107 30% 74% 2018 1520 14.2
SAP/Concur 8300 546 32% 63% 2014 5988 11
SAP/SuccessFactors 3764 328 59% 66% 2011 3599 11
Salesforce/Demandware 2800 274 40% 71% 2016 2502 9.1
Oracle/Eloqua 957 95.8 34% 72% 2012 864 9
SAP/Callidus 2400 253 22% 61% 2018 2247 8.9
SAP/Ariba 4607 517 27% 66% 2012 4390 8.5
Microsoft/LinkedIn 26500 3615 30% 87% 2016 24385 6.8
Oracle/Responsys 1770 194 25% 53% 2013 1291 6.7
Cisco/Broadsoft 2288 362 10% 72% 2018 2137 5.9
Oracle/Taleo 1921 315 33% 67% 2012 1805 5.7
IBM/Kenexa 1397 333 25% 61% 2012 1332 4

*Github data is estimated from public news reports here and here. All other data originates from public filings or disclosures


Published 2018-06-12 in exits  trends  data-analysis  startups 

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