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The Tech Report – Q1 2018 Market Review

By Dan Lee 15 Apr 2018

Here at Results we cover all aspects of technology with a particular focus on enterprise software / SaaS, software-related IT services, and tech enabled services. However we like to turn our attention to a number of specific sectors at the end of every quarter to consider the trends and analyse the activity in the M&A, fundraising and public markets.

 

We have produced our view on the previous quarter’s proceedings in a series of individual market reviews on:

Digital Services

Enterprise Software

HealthTech

Cybersecurity

Marketing Technology Barometer

 

Q1 2018 has enjoyed another strong quarter off the back of a record-breaking 2017. Growth in M&A, public stocks and IPOs has been experienced across almost all of our sectors and, given the continued momentum, the remainder of the year is looking particularly exciting for the majority of the sectors Results International covers.

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After its re-emergence in 2017, the IPO market is set to continue its growth into 2018. We have seen a number of high profile and highly successful IPOs, including next-gen cybersecurity company Zscaler, a provider of cloud-based network security, which listed at double digit revenue multiples and has nearly doubled in market cap since. Across the wider tech sector, Spotify and Dropbox were among the notable IPOs launched this year and many larger, later-stage tech companies have filed to IPO in the coming months, including Carbon Black and Avast, demonstrating that raising liquidity via IPO is back in vogue. This extra liquidity also has the additional benefit of widening the potential buyer group for companies considering a strategic exit.

Q1 also saw the tech stalwarts enter the M&A fray once again. SAP, after a relatively quiet few years, announced its first billion dollar deal since its $8.3bn acquisition of Concur in 2014; the $2.4bn acquisition of CallidusCloud, the cloud-based sales performance platform, in a bid to further strengthen its CRM proposition and meet aggressive cloud-based revenue targets. The acquisition will help it steal back CRM market share from Salesforce who in turn made a significant move in the cloud space this quarter, again after a relatively quiet year in 2017, acquiring Mulesoft, the listed infrastructure PaaS for $6.4bn. Mulesoft’s ability to integrate, modernise and enable legacy systems, with Salesforce’s integration already built in, drove the valuation behind Salesforce’s largest acquisition cheque ever.

Salesforce, along with its SaaS counterparts, are enjoying a close to all-time high EV/revenue multiple, tracking at 6.6x, and SaaS companies are taking advantage of that buoyant market; none more so than Flatiron, the oncology clinical trial aggregation SaaS, which was acquired by Roche this quarter. Diversifying Roche’s revenue stream and adding a rapidly growing SaaS platform, the acquisition represented the largest disclosed HealthTech acquisition since EQT’s acquisition of Press Ganey in Q3 2016 and the largest exit for a NYC VC-backed company.

With major legislation due to hit Europe in the form of GDPR, set to pass in May this year, companies that utilise datasets to inform their platforms are under especially fierce scrutiny. Notably AdTech, an industry underpinned by third party data which informs targeting, is facing an uncertain time around how its industry will be affected. Some companies have closed operations in Europe as they realise the risk of fines will outweigh any potential uplift, specifically cross-device identity company Drawbridge which closed its EU ad business in March. This could go some way to explaining why AdTech has been one of the only sectors to underperform in recent quarters.

It is evident that people have accepted the uncertainty in the global economy as a way of life and decided to capitalise on a swathe of opportunity. With uncertainty the norm; slow Brexit negotiations, a protectionist and interventionalist US president and the doomsayers insistency of a looming recession (including uncertainty around when it is coming), it is almost a surprise to see the tech sector booming in the sustained manner it is. However, with emerging technologies driving innovation, increased capital flows and sustained momentum, it remains an exciting time to be involved in the sector.

We hope you enjoy the document, and please do get in touch if you would like to discuss any of the themes with us. We look forward to speaking with you soon.

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Dan Lee

Vice President

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