software m&a update · 2021. 1. 22. · software m&a update 4q 2020 trevor hulett managing director...

Software M&A Update4Q 2020

Trevor HulettManaging [email protected]

Jason [email protected]

For more information on R.L Hulett & Co. or this report please visit our website at rlhulett.com or call us at (314) 721-0607

CONTENTS

2 Global Deal Analytics6 Valuation Multiples8 Leading M&A Deals9 Public Comps11 Our Service Offerings12 Selected Transactions13 Our M&A Deal Leaders

REPORT HIGHLIGHTS

M&A deal volume rebounded nicely in Q4, up 31% from Q3 levels to 902 transactions as the capital markets continue to normalize from the effects of the pandemic

Despite the 31% uptick in Q4, however, overall deal volume in 2020 declined 10% from 2019

Strategic buyers were more active than PE investors in both deal volume and total capital invested in 2020

The $4.7 billion buyout of Epicor Software by Clayton, Dubilier & Rice represented the largest completed transaction in Q4

Valuation multiples on M&A transactions trended up in Q4

Software M&A Update | 4Q 2020

Source: PitchBook Data R.L. Hulett & Company, Inc.

We tracked all 902 Software deals in Q4 2020 globally and North America was the most active region, representing 49%

of transactions. Europe was the second most active market, with 332 deals, and representing 37%. The remaining regions

combined for 124 transactions in Q4, representing 14% of the total.

In the North American market, the West Coast region continues to be the

most active area from an M&A standpoint due primarily to activity in

Silicon Valley. In Q4, 107 deals closed in the West Coast region

representing 24% of the total. The Mid Atlantic region contributed 15%

of the total transactions, followed by the Southeast and South regions,

with 56 deals and 41 deals, respectively. Transactions of note in the

South include Clayton and Dubilier & Rice’s buyout of Epicor Software

and TPG’s buyout of PlanView.

Outside of the U.S., 67 transactions closed in the Canadian market in Q4

making it the second most active market in North America.

West Coast: 107

Mid Atlantic: 65

Southeast: 56

South: 41

Midwest: 26

Other: 84

Global Deal Analytics

Canada: 67

United States Regions

Source: PitchBook Data

0 1-50 50-400 >400

446332

57

18

7

18

15

27



TransportationManagement

OtherDigital Transaction Management

Application SoftwareDevelopment

Fintech

Among the 902 Software deals in Q4 2020, 30% were done in the Application Software Development subsector. The

next most active subsector was Fintech with 187, followed by Digital Transaction Management and Transportation

Management with a combined 27% of the total. The remaining subsectors had a total of 205 completed transactions.


Deal by Subsector


266

187135

109

205



Under the pandemic, we saw a modest

decline in deal volume in Q2 and Q3. In Q4

2020, deal volume increased sharply from Q3

to 902 transactions for an increase of 31%.

Since 2015, total deal volume has been

increasing annually at an average of 13% to a

peak of 3,972 in 2018. In 2019, the total

number of reported transactions decreased

17% to 3,286 and declined further in 2020

due to covid, down 10% from the prior year.

Compared to a number of other industries

heavily impacted by the pandemic, deal

volume in the Software sector was down

modestly in 2020 but remained relatively

active, especially considering the rebound in

Q4. We anticipate seeing a continuation of

this upward momentum in M&A activity in

the first half of 2021.

Aggregate transaction value in 2018 reached

a peak of $232.2B for all deals disclosed. In

2019, capital invested held up relatively well

at $207.5B, down 10.6% from 2018. Total

capital invested continued to decline in 2020,

down 19.6% from the prior year to $166.9B.



902

688672695729

792826939904

9599881,121

916945883

1,035

-

200

400

600

800

1,000

1,200

4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q

2020201920182017

Deal Volume

7.17.410.29.69.08.737.140.948.136.033.635.022.432.1

27.025.322.921.1

100.3127.1146.9

79.7139.5

62.6

166.9

207.5232.2

150.6

204.9

127.4

-

50 B

100 B

150 B

200 B

250 B

202020192018201720162015

Total Capital Invested by Deal Value

0-50 50-500 500-1000 MM

1000 MM + Total

2,957 3,286

3,972 3,779 3,523

3,192

-

1,000

2,000

3,000

4,000

5,000

202020192018201720162015

Deal Volume



We saw a shift in size mix in 2020 slightly

away from the large middle market ($50-

$500MM), down to 24.5% from 27.1%, and

into the lower middle market ($0-$50MM),

increasing to 67.5% from 63.6% in 2019.

Deal volume in the large tranche of the

market ($500MM+) also decreased slightly

from prior year levels.

While strategic buyers have historically

accounted for the majority of M&A volume

in the sector, we have seen a steady trend of

increasing participation by private equity

buyers over the last seven years from 26.6%

in 2014 to 40.1% in 2020.

Similar to the trends in deal volume, private

equity buyers have also made up an

increasing share of total capital invested in

recent years and in fact, in 2019, reached the

highest level in the past six years at 43.2%.

This trend has continued in 2020 with

private equity buyers accounting for an even

higher share yet at 43.7% of the total.



67.5%63.6%70.9%74.0%75.4%75.6%73.2%

24.5%27.1%22.3%20.3%18.4%19.1%21.8%

4.0%4.9%3.1%2.8%2.9%2.9%2.6%4.0%4.4%3.6%2.9%3.3%2.4%2.4%

0%

20%

40%

60%

80%

100%

2020201920182017201620152014

Deal Volume by Deal Value

0-50 50-500 500-1000 MM 1000 MM +

40.1%38.2%36.7%34.3%28.8%26.3%26.6%

59.9%61.8%63.3%65.7%71.2%73.7%73.4%

0%

20%

40%

60%

80%

100%

2020201920182017201620152014

Deal Volume by Acquirer

Private Equity Strategic

43.7%43.2%33.8%37.4%3441.7%35.5%32.2%

56.3%56.8%66.2%62.6%6559.6%64.5%67.8%

0%

20%

40%

60%

80%

100%

2020201920182017201620152010

Total Capital Invested by Acquirer

Private Equity Strategic



Valuation Multiples


7.3x

6.2x6.8x

5.7x

2.5x

0.1x

6.8x

3.3x

2.4x

4.5x

7.1x

0.00x

1.00x

2.00x

3.00x

4.00x

5.00x

6.00x

7.00x

8.00x

20202019201820172016201520142013201220112010

Debt/EBITDA

14.3x12.9x16.0x

12.5x12.0x12.2x12.8x9.9x

20.5x

9.9x14.9x

15.01x13.57x

19.37x17.93x

13.75x

24.12x

14.75x

8.94x10.25x

14.72x

11.24x

0.00x

5.00x

10.00x

15.00x

20.00x

25.00x

30.00x

20202019201820172016201520142013201220112010

Strategic EV/EBITDA PE EV/EBITDA

12.3x13.4x

17.2x

13.5x12.9x

18.3x

14.4x

9.1x

13.3x13.5x14.4x

2.91x 2.95x 3.22x 2.47x 2.73x 2.94x 2.60x 2.21x 1.92x 2.40x 1.75x

0.00x

2.00x

4.00x

6.00x

8.00x

10.00x

12.00x

14.00x

16.00x

18.00x

20.00x

20202019201820172016201520142013201220112010

EV/EBITDA EV/Revenue



Revenue EBITDA

22-Dec-2020 Avaloq NEC Corporation Merger/Acquisition 2,291.89 - -Developer of core banking software systems

based in Switzerland

21-Dec-2020 Leyou Technologies Holdings Tencent Holdings Merger/Acquisition 1,497.30 7.51x 87.80xLeyou Technologies Holdings Ltd is a part of the

technology sector

21-Dec-2020 The Penny Hoarder Clear Link Technologies Merger/Acquisition 102.50 2.05x - Developer of personal finance platform

18-Dec-2020 PlanView TA Associates Management Buyout/LBO 1,600.00 - -Developer of SaaS portfolio and resource

management software

17-Dec-2020 ISN Software The Blackstone Group PE Growth/Expansion 500.00 - -Developer of third-party contractor and supplier

management software

17-Dec-2020 CIPHR ECI Partners Buyout/LBO 166.75 9.75x -Developer and provider of human capital

management software

15-Dec-2020 PhonePe Flipkart Corporate 2,025.30 35.26x - Developer of a mobile payment application

15-Dec-2020 Expanse Palo Alto Networks Merger/Acquisition 800.00 - -Developer of IT operations management

platform

11-Dec-2020 FireEye (NAS: FEYE) ClearSky PIPE 400.00 0.43x - FireEye is a pure-play cybersecurity firm

10-Dec-2020 DoProcess Dye & Durham Merger/Acquisition 530.00 - -Developer of practice-specific law office

software

09-Dec-2020 C3.ai (NYS: AI) BlackRock IPO 651.00 3.95x -C3.ai Inc is an enterprise artificial intelligence

company

03-Dec-2020 Bread Alliance Data Systems Merger/Acquisition 450.00 - -Developer of an online financing platform

designed to boost merchant sales

01-Dec-2020 Upserve Lightspeed POS Merger/Acquisition 430.00 10.75x -Developer of a restaurant management

software

25-Nov-2020 ShopKeep Lightspeed POS Merger/Acquisition 440.00 8.80x -Developer of a cloud-based point-of-sale

technology platform

19-Nov-2020 Finicity MasterCard Merger/Acquisition 985.00 - -Developer of a real-time financial data

aggregation and insight platform

04-Nov-2020 SDL RWS Holdings Merger/Acquisition 779.00 1.65x 12.04x

A technology company offering global

authoring, content management, translation

management

02-Nov-2020 LLamasoft Coupa Merger/Acquisition 1,500.00 - -Developer of supply chain analytics and

planning platform

21-Oct-2020 Optimizely Episerver Buyout/LBO 600.00 - - Developer of an experimentation platform

16-Oct-2020 Paya (NAS: PAYA) N/A Reverse Merger 1,300.00 6.42x -Provider of integrated payment and frictionless

commerce solutions

15-Oct-2020 Rosetta Stone Cambium Learning Group Buyout/LBO 792.00 4.20x - An education technology software company

14-Oct-2020 Epicor Software Clayton, Dubilier & Rice Buyout/LBO 4,700.00 - -Developer of enterprise software products

intended to promote business growth

09-Oct-2020 YCharts LLR Partners Buyout/LBO 202.50 13.50x - Developer of an investment research platform

08-Oct-2020 Embracer Group (STO: EMBRAC B) AMF Pensionsförsäkring PIPE 650.25 0.84x 1.67x

Parent company of businesses developing and

publishing PC, console, and mobile games for

the global games market

01-Oct-2020 Open Systems International Emerson Merger/Acquisition 1,600.00 9.58x -Developer of open automation, network control

and optimization platforms

01-Oct-2020 Signal Sciences Fastly Merger/Acquisition 775.00 - - Developer of a web protection platform

01-Oct-2020 SmartDrive Systems Omnitracs Buyout/LBO 450.00 - -Developer of a freight safety and risk

management software

Target Business DescriptionDeal TypeDeal Date Company Name InvestorDeal Size

($mm)

EV

Largest Deals (Completed)




Leading M&A Deals (Completed)

Deal Deal Synopsis Driver

Avaloq, a Swiss company that develops and provides software for core banking, was acquired by NEC Corporation (TKS: 6701) for$2.29 billion on December 22, 2020. The partnership is expected to accelerate Avaloq’s long-term growth, global expansion and value creation strategy.

Global Expansion

Open Systems International was acquired by Emerson (NYS: EMR) for $1.6 billion on October 1, 2020. The acquisition complements Emerson's existing robust portfolio of software and automation technologies that support the world's essential industries.

Growth

LLamasoft, a leader in AI-powered supply chain design and planning, was acquired by Coupa(NAS: COUP) for an estimated $1.5 billion on November 2, 2020. The acquisition will strengthen Coupa’s supply chain capabilities, enabling businesses to drive greater value through Business Spend Management.

Business Spend Management

(BSM)

Leyou Technologies Holdings was acquired by Tencent Holdings (HKG: 00700) for $1.5 billion on December 21, 2020. Leyou’s studios join Tencent’s growing list of video game holdings including League of Legends and Valorantdeveloper Riot Games, Brawl Stars and Clash Royale developer Supercell, and MMO developer Funcom.

PortfolioDiversification




Public Comps


$MM

Company 18A 19A 20A 18A 19A 20A 18A 19A 20A 18A 19A 20A 18A 19A 20A

Oracle NYS: ORCL 64.7 190449.6 70782.0 223337.6 4.3x 4.9x 5.7x 10.4x 11.8x 11.5x 2% 0% 0% 79% 80% 80% 41% 44% 44%

Helmerich & Payne NYS:HP 23.2 2492.1 526.0 2440.8 2.2x 1.8x 1.4x 8.8x 9.5x 2.5x 38% -37% -37% 10% 6% 6% 25% -8% -8%

SAP ETR: SAP 131.4 157415.0 21145.9 169422.1 4.4x 5.8x 5.4x 16.3x 24.3x 16.1x 3% 3% 3% 70% 71% 71% 27% 28% 28%

Cognizant Technology Solutions NAS: CTSH 82.0 43813.8 3483.0 42721.8 2.1x 2.0x 2.6x 10.7x 10.5x 13.0x 10% 1% 1% 39% 36% 36% 19% 16% 16%

Baidu NAS: BIDU 216.2 73754.2 11338.9 64888.0 3.3x 2.4x 4.3x 7.4x 14.9x 23.0x 24% 0% 0% 52% 47% 47% 45% 19% 19%

Mean 3.2x 3.4x 3.9x 10.7x 14.2x 13.2x 15% -7% -7% 50% 48% 48% 31% 20% 20%

Median 3.3x 2.4x 4.3x 10.4x 11.8x 13.0x 10% 0% 0% 52% 47% 47% 27% 19% 19%

$MM


Square NYS: SQ 217.6 98141.9 2668.1 96077.8 7.6x 6.0x 12.6x 578.9x 321.8x 335.4x 45% 77% 77% 39% 32% 32% 1% 6% 6%

Intuit NAS: INTU 379.9 104096.3 2634.0 100937.3 8.2x 9.6x 12.9x 28.1x 31.7x 33.4x 15% 13% 13% 83% 83% 83% 30% 33% 33%

PayPal Holdings NAS: PYPL 234.2 274410.2 8937.0 269233.2 6.1x 7.1x 13.3x 27.4x 33.4x 58.6x 21% 19% 19% 43% 46% 46% 22% 26% 26%

Visa NYS:V 218.7 482141.2 24070.0 491256.2 15.0x 18.6x 22.5x 22.1x 26.6x 31.7x 12% -5% -5% 81% 79% 79% 68% 69% 69%

Thomson Reuters TSE: TRI 81.7 40614.3 3720.0 42632.3 4.5x 6.4x 7.2x 16.7x 14.9x 23.1x -20% 2% 2% 35% 37% 37% 28% 33% 33%

Mean 8.3x 9.6x 13.7x 134.6x 85.7x 96.4x 15% 21% 21% 56% 56% 56% 30% 33% 33%

Median 7.6x 7.1x 12.9x 27.4x 31.7x 33.4x 15% 13% 13% 43% 46% 46% 28% 33% 33%

$MM


Twitter NYS: TWTR 54.2 43068.2 4348.6 39735.7 6.5x 6.4x 11.6x 24.3x 24.4x 46.3x 18% 2% 2% 68% 64% 64% 26% 12% 12%

Netflix NAS: NFLX 540.7 238891.8 16047.1 246546.6 8.2x 7.9x 10.4x 13.6x 13.4x 118.8x 37% 26% 26% 35% 39% 39% 60% 61% 61%

Facebook NAS: FB 273.2 778039.6 10616.0 733035.6 6.5x 8.1x 9.3x 11.9x 19.2x 18.4x 42% 19% 19% 84% 81% 81% 54% 43% 43%

Snap NYS: SNAP 50.1 74603.3 1978.3 73856.7 5.3x 14.1x 34.3x N/A N/A N/A 53% 40% 40% 28% 51% 51% -125% -43% -43%

The Walt Disney Company NYS:DIS 181.2 328023.7 58628.0 382666.7 3.1x 4.5x 5.9x 10.1x 14.9x 26.6x 8% -6% -6% 45% 33% 33% 31% 8% 8%

Mean 5.9x 8.2x 14.3x 15.0x 18.0x 52.5x 31% 16% 16% 52% 54% 54% 9% 16% 16%

Median 6.5x 7.9x 10.4x 12.8x 17.0x 36.4x 37% 19% 19% 45% 51% 51% 31% 12% 12%

$MM


Fortinet NAS: FTNT 148.5 24111.2 0.0 22454.5 6.1x 8.0x 9.1x 43.6x 45.0x 33.4x 19% 20% 20% 75% 78% 78% 14% 21% 21%

Cisco Systems NAS: CSCO 44.8 189091.8 14566.0 173645.8 3.5x 3.7x 3.6x 11.4x 12.3x 10.3x 5% -8% -8% 62% 64% 64% 31% 30% 30%

Splunk NAS: SPLK 169.9 27474.8 2614.7 28095.8 9.0x 10.7x 12.3x N/A N/A N/A 43% 4% 4% 80% 77% 77% -12% -27% -27%

Microsoft NAS: MSFT 222.4 1681605.5 71305.0 1614933.5 6.3x 8.8x 11.0x 13.9x 18.8x 21.0x 16% 13% 13% 65% 68% 68% 45% 49% 49%

International Business Machines NYS:IBM 125.9 112166.3 70386.0 167085.3 1.7x 2.3x 2.2x 8.3x 14.9x 10.5x 3% -3% -3% 46% 48% 48% 21% 20% 20%

Mean 5.3x 6.7x 7.7x 19.3x 22.8x 18.8x 17% 5% 5% 66% 67% 67% 20% 19% 19%

Median 6.1x 8.0x 9.1x 12.7x 16.8x 15.8x 16% 4% 4% 65% 68% 68% 21% 21% 21%

Fin

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Soft

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Ticker Stock Price

Ticker Stock Price

EV/Revenue EV/EBITDA Revenue Growth Gross Margin EBITDA Margin




Market

CapTotal Debt

Enterprise Value

(EV)

Ticker Stock PriceMarket

CapTotal Debt

Enterprise Value

(EV)

Market

CapTotal Debt

Enterprise Value

(EV)

Ticker Stock PriceMarket

CapTotal Debt

Enterprise Value

(EV)


R.L. Hulett & Company, Inc.

Popular Industries in 2020

Digital Health

Work From Home Technologies

Electric Vehicles

E-Commerce

Fintech

Social Media



Our Service Offerings

Sell-Side Advisory: Sell your business

Sell your business for the highest price and for the best terms. At R.L Hulett,communicating the value of your business to targeted buyers and finding the best fit foryour team is our forte. We strive to maintain your company’s culture and heritage evenas you transition out of your business.

Buy-Side Advisory: Buy a business

Searching for acquisition targets can be a challenging and time-consuming task whentrying to run your own business at the same time. Navigating the risks and pitfalls innegotiating valuation and deal structure can also be a daunting task for many businessowners. Let our team help you minimize your risk and reduce time wasting efforts withour decades of experience in advising in both buy and sell-side M&A transactions. Weutilize industry-leading M&A databases to scout for opportunities and pre-screen for“real” actionable targets so you can stay focused on what matters.

Capital Raise: Gain financial support

With nearly 40 years of experience in middle-market M&A advisory, we know how topackage up your deal and put you in front of the right kind of investors who have thecapital and the industry expertise you need to grow your business. Our team willdevelop a go-to-market strategy and advise on deal structure, valuation, due diligenceand transition issues. Whether you are seeking capital for growth or trying to buy outother shareholders, we have the tools, expertise, and experience to execute a strategicprocess and find the optimal outcome to meet your objectives.

Restructuring: reorganization of your business

In today’s uncertain economic times, more and more companies are finding themselvesin unfamiliar, and unwanted, positions. Many business owners are hoping recovery isjust around the corner; however, proactive measures are often required to maximizethe remaining value of the business. Our team can aid banking institutions with workoutsituations by implementing internal controls over cash management and performing on-going cash flow modeling for their clients. We can also help business owners avoidhaving trouble making payments on their debts and avoid the cumbersome and low-value asset liquidation process.



Over nearly 40 years, R.L. Hulett & Company has completed hundreds of transactions in a wide variety of industries.Below are some our representative transactions in the Software and Tech-Enabled Services Sector. Please note that thislist is not comprehensive. It is common for sellers and/or buyers to request confidentiality regarding their transactions,and R.L. Hulett & Company respects such requests as a matter of policy.

Transaction Experience



Mr. Hulett has led M&A transactions in a variety of industries includingmanufacturing/industrial, software development/IT, business services and value-addeddistribution for over 15 years. Prior to joining the firm, he held senior level accounting andfinancial management positions in both public accounting and large corporations. Mr. Hulettbegan his career as a Certified Public Accountant with MPP&W, a St. Louis-based publicaccounting firm specializing in middle market companies. He then held various managementpositions in internal audit and corporate accounting with a Fortune 1000 industrialmanufacturing company and also spent nine years with Enterprise Rent-A-Car Company as adepartment manager in the Corporate Accounting group. Mr. Hulett holds his Series 62, 63 and79 securities registration. Mr. Hulett earned a Bachelor’s Degree in Accounting from theUniversity of Missouri, Columbia.

Our M&A Deal Leaders

Mr. Hulett founded the firm in 1981 and has negotiated and completed more than 200transactions throughout his career. He began his career as a Certified Public Accountant andpracticed with Peat, Marwick, Mitchell & Co. in St. Louis as an Audit Manager and in New Yorkas the Director of Training for Private Business. Mr. Hulett has also served as Chief Executive &Board Member for various middle market companies. As an educator, he was an adjunctprofessor at New York University and a tenured faculty member at Lindenwood University in St.Louis. He conducted training sessions for middle market CPA firms throughout the country formore than ten years. Mr. Hulett earned his BS/BA Cum Laude in Accounting from the Universityof Missouri-Columbia, and an MBA from Lindenwood University.

R. Trevor Hulett, CPAManaging Director

(314) 721-0607 [email protected]

Robert L. HulettChairman Emeritus


Mr. Vass has over 30 years of business management experience including more than 10 yearsas President of a highly successful consumer products manufacturing company with revenuesexceeding $25 million. During this time, he not only reversed a declining sales and earningstrend, but increased both sales and operating income over 100%. In addition, he has spent over20 years at the executive level of Vice President of Sales and Business Development. Mr.Vass also has experience in a number of other industry niches including consumer products,commercial furniture and fixtures and metal recycling. He holds a Bachelor’s Degree inEconomics from DePauw University and an MBA from the University of Michigan.

David T. VassDirector


Lori MoserDirector


Lori has over 30 years of business experience in manufacturing and consumer productindustries. She has a strong depth of expertise in multiple disciplines including businessdevelopment, M&A, project management, general management, sales, finance, andmarketing. She brings a high level of energy, drive, and passion to the M&A arena. Working fora Fortune 500 company, she has led several divestitures; initiated, developed, and ran strategicnew business platforms; and held various VP level sales and marketing functions. Ms. Moserholds a Bachelor’s Degree in Finance from Southeast Missouri State and an MBA from WebsterUniversity.



About R.L. Hulett & Company

R.L. Hulett & Company is a middle-market investment bank based in St. Louis, Missouri providing financial advisory and M&Aadvisory services to middle market companies. Since its founding in 1981, the firm has advised in over 230 transactions in avariety of industries including manufacturing, distribution, business services, food & beverage, transportation & logistics,health care and tech-enabled services. The firm has an experienced team of M&A advisors consisting of former businessowners, seasoned corporate executives, professional service firm partners, CPAs and MBAs. Our ability to deliver customizedsolutions to meet or exceed our clients’ expectations is what sets us apart from our competitors.

Industry Sectors Covered:

Disclaimer

The data in this document has been derived from PitchBook Data and has been compiled by R.L. Hulett & Company. Thisdocument is strictly for illustrative purposes only. The data presented in this document is not comprehensive and should notbe used for benchmarking, valuation, or for any other decision making. R.L. Hulett & Company accepts no responsibility forloss or damage caused by dependence on the information in this document.

Industrial Transportation and Logistics Food & Beverage

Business Services Software/Tech-enabled Services Healthcare

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