Software Update: VC and M&A Activity Remains Strong (September 2019)
September was a bit of a blur for us so it’s with a little bit of surprise that it’s already October and that we’re writing up observations on how September went. We thought it was worthwhile to start blogging once a month on the topic of the tech VC and M&A markets, highlighting the trends we are seeing and how well the overall VC and M&A markets are doing in general.
Software Venture Capital (VC)
September was a strong month for VC investment into North American software companies, with $4.4bn invested across 270 transactions. This brings the year’s total to $35.1bn, so we should be on pace to surpass last years recent record of $42.5bn of VC capital invested into software companies.
Figure 1: VC Investment into Software Companies (2014 – 2019YTD)
Source: Pitchbook.
There were several VC notable transactions this month including Canada’s largest ever VC raise for Verafin which came in at C$515m and was led by Spectrum Equity. Other notable VC raises across North America included Fundbox’s $326m raise led by Khosla, Samsara’s $300m raise led by Andreessen Horowitz, GitLab’s $268m raise led by Goldman Sachs and Stripe’s $250m raise as led by Andreessen Horowitz.
With regards to VC valuations, Software VC valuations by stage remained relatively consistent across all stages for the past few years but have diverged dramatically in the YTD period with early stage valuations now commanding significantly higher multiples.
Figure 2: VC Valuations by Stage (Valuation / Revenue)
Source: Pitchbook.
Software Mergers and Acquisitions (M&A)
Software M&A continues to show a really good growth trajectory with this years dollars invested already exceeding the $ volume in all of 2018. At this pace we are on track to grow dollars invested by almost 50% year-over-year, which is really impressive considering that last year’s haul was the highest we have seen in recent years.
Figure 3 – M&A Deal Volume and Dollars Invested
Source: Pitchbook.
At the same time, M&A valuations have continued to rise in the YTD period with the median YTD SaaS multiple coming in at 7.5x. We have also seen the spread between SaaS and non-SaaS continue to widen this year as non-SaaS multiples have declined from the bounce back they made in 2018. However, we would say that we are witnessing non-SaaS businesses with meaningful recurring maintenance revenue to trade more consistently with their pure SaaS counterparts.
Figure 4 – Median SaaS vs Non-Saas M&A Revenue Multiples
Source: Pitchbook.
One trend we do want to keep an eye on is the month over month decline in M&A deal activity. We can see that in figure 3 above with the annualized number of deals dropping pretty significantly year-over-year and we can also see it more clearly in the chart below when we look at the monthly trends since the beginning of 2018. For much of 2018 we hovered around 125-150+ per month in total number of deals and if we look at 2019, this has dropped to an average of less than 120.
Figure 5 – Monthly M&A Deal Counts
Source: Pitchbook.
About Sampford Advisors
Sampford Advisors is a boutique investment bank exclusively focused on mid-market mergers and acquisitions (M&A) for technology, media and telecom companies. We have offices in Toronto, Ottawa and the US and have done more mid-market tech M&A transactions than any other adviser.