Software Update - M&A and VC Trends (October 2019)
October was a busy month and we saw a nice rebound in both the software VC and M&A markets. Let’s dive a little deeper into both.
Software Mergers and Acquisitions (M&A)
Software M&A accelerated in October with 130 transactions getting announced versus last month’s 94 and the prior 6 month average of 114 transactions. This is a good sign as the last few months have been a bit rocky given some of the broader market concerns and we had seen a big year-over-year decline going into September (see chart below)
Source: Pitchbook.
This heightened activity combined with some large transactions announcing recently sees us already exceeding last year’s record dollar volume and on track to grow 2019 by over a third when compared to 2018 performance.
Source: Pitchbook.
In addition, valuations have stayed strong with the average SaaS revenue multiple coming in at 7.2x, up significantly from historical averages of between 3 and 4x revenue. Non-SaaS software multiples have dipped this year but we at Sampford continue to see buyers paying strong multiples on recurring maintenance revenue for non-SaaS businesses.
Source: Pitchbook.
Software Venture Capital (VC)
Venture Capital investments into Software companies continues to be strong, with us quickly approaching last year’s record of $42.5bn. With the flurry of year-end funding activity, we should be easily past this figure in the next couple of months, making 2019 a recent record for VC funding into Software companies.
Source: Pitchbook.
In addition, VC valuations have remained strong, with early stage revenue multiples coming in at over 20x, mid stage at nearly 14x and late stage still hovering at 10x. These are impressive valuations when viewed in comparison with the last few years.
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 (TMT) companies. We have offices in Toronto, Ottawa and the US and have done more mid-market tech M&A transactions than any other adviser.