Welcome to the 2018 edition of our Enterprise Stack Report – Results International’s quarterly market update for the enterprise software segment.
Review of 2018:
- Public stocks performed well during the year with the RI SaaS index showing valuations of 8.8x revenue in mid-September (a record high) and ending the year at 7.3x, still a long way above the historical median of 5.8x. In addition, all but one of the RI tracked enterprise software indices (healthtech) showed growth across the year, with analytics, martech and pure-play SaaS rising as much as c.30%.
- This year has seen the largest total enterprise software M&A spend since our records began (c.$200bn+) driven by a high number of multi-billion dollar transactions, including: IBM/Redhat ($34bn), Broadcom/CA ($18bn), SAP/Qualtrics ($8bn), Microsoft/Github ($7.5bn) and Salesforce/Mulesoft ($6bn).
- The increased M&A activity is most notable amongst some of the market’s large global aggregators who have sought to fill strategic gaps, broaden capabilities and acquire innovation; fueling activity after a quiet 2017. Salesforce, Adobe and SAP made just one acquisition apiece in 2017, but last year were responsible for some of the year’s largest transactions.
Review of predictions made for 2018:
- After a stellar 2017, we predicted continued strong activity in the space. During 2018 M&A deal volume was up 12% and total spend increased from $65bn to $200bn+. In addition, we predicted that private equity would be increasingly active, which was evidenced by a 10% increase in the number of PE deals announced amongst the top 10 enterprise software acquirers. Nine PE firms featured in the top 10 enterprise software acquirers for the year
- We also predicted that AI and Robotic Process Automation (RPA) would drive strategic and PE interest, which was true in the broader market and for Results International; we advised Symphony Ventures, an RPA specialist consultancy, on its acquisition by SYKES, and advised global private equity house Baird Capital on its investment into AI brand-safety platform Crisp Thinking.
Predictions for 2019:
- The political forces driving uncertainty in the public markets will likely continue, meaning companies could increasingly postpone or abandon IPOs. In turn, this will boost activity in the private markets with M&A and fundraises representing an attractive alternative, fuelled by high levels of available private capital. We saw early evidence of this in 2018 as M&A began to disrupt prospective IPOs: the $8bn acquisition of Qualtrics by SAP, the $1.5bn acquisition of Adaptive Insights by Workday and the $1.6bn acquisition of AppNexus by AT&T.
- We anticipate that AI and natural language processing technologies will consolidate their position in the mainstream as enterprise software vendors increasingly incorporate these capabilities into their platforms, whilst also fueling buyer appetite as innovation in this field becomes progressively more sought-after.
- Following a number of high profile data breaches, we expect cybersecurity activity to rise as Boards increasingly focus on the issue. Results International advised cybersecurity companies Avecto (acquired by Bomgar) and MWR (acquired by F-Secure) in 2018.
We hope that you enjoy this document and look forward to discussing the data and underlying themes with you. If you are contemplating fundraising, exit or growth through acquisitions, please do get in touch.Read Less