But now, add to that an uncharacteristic slowdown in the Q2 tech deals by the other main buying group, private equity (PE) firms, which had been the sole ‘growth market’ in tech M&A recently. PE shops have doubled their number of tech acquisitions in the past five years, but in Q2, they posted a second consecutive year-on-year quarterly decline in deal volume. Spending dropped even sharper, with the value of PE deals in Q2 coming in at just half the level of the year-ago quarter. (We look at the trends in the tech buyout market more fully later in this report.)
Changing M&A Appetites
For instance, corporate buyers hadn't announced a single software transaction valued in the billions of dollars this year until three weeks before the end of Q2. The drought was snapped by a pair of quick-fire analytics deals by Google and Salesforce. But still, the two big enterprise software transactions so far in 2019 is a notable step down from the same period last year, when broad-market software vendors announced five billion-dollar deals.
Noteworthy transactions announced since April include:
- Salesforce printed its largest acquisition to date, roughly equal to the combined amount it handed out in its next eight largest deals. The $15.1bn in stock it paid for Tableau values the analytics provider at 12x trailing revenue.
- Continuing the recent consolidation of the semiconductor industry, Infineon paid $9.1bn for Cypress Semiconductor. The deal is three times bigger than any single transaction the German chipmaker has ever done.
- The newly appointed head of Google Cloud looked to M&A in a big way to help close the gap on other public cloud suppliers. Google handed over $2.6bn for data visualization vendor Looker.
- Siris Capital Group continued its effort to erase mature tech companies off US public exchanges. It paid $1.7bn for 30-year-old Electronics for Imaging in a deal that valued EFI at just 1.4x trailing sales, the second-lowest valuation Siris has paid in any of its take-privates.
PE's Down-Market Deals
Those trends in the buyout industry hit their high-water mark in terms of overweening financial confidence with the $11bn LBO of Ultimate Software. PE firm Hellman & Friedman led the mammoth deal, which valued Ultimate at 10x trailing sales and, unusually, included other investment shops to help pay for it. The transaction is the largest-ever software take-private, according to our data, and the valuation matched the highest-ever multiple paid in the nearly 40 software vendors erased from US exchanges for over $1bn by PE firms.
Although the take-private of Ultimate was announced only in February, it almost looks like it belongs to an entirely different era. Now, PE shops appear to be moving down-market in their big purchases, as well as focusing more on bolt-on acquisitions than big platform purchases. With just two quarters of declining buyout activity, we don't want to make too much of this trend. But it's still worth nothing that, at least early on, the buyout barons appear to have slowed their roll through tech M&A, a change that could remove billions of acquisition dollars from the market.
Buyout Firms Slow Buying
And yet, even as they put up significantly fewer billion-dollar deals, buyout shops are doing almost as many transactions overall as they have in history. Between direct investments by the firms and bolt-ons by their existing portfolio companies, financial acquirers are on pace to almost match last year's record of more than 1,100 announced transactions, which is twice the number of deals they announced just in 2014
- Insight Venture Partners paid a double-digit multiple to take a majority stake in threat intelligence startup Recorded Future, which we estimate was growing revenue at a 50%+ clip. (Subscribers to the M&A KnowledgeBase can see our record on the transaction, which includes our proprietary estimates for Recorded Future's 2018 and 2019 revenue.)
- In its first acquisition since going private late last year with Vista Equity Partners, Apptio paid what we understand to be a healthy price for Cloudability. (Subscribers to the M&A KnowledgeBase can see our estimates for the price and valuation of that deal.)
451 Research will have an in-depth report tomorrow on the stunningly rich valautions being awarded across the board to IPOs so far this year. The report will also look ahead at which startups from our coverage areas might be aiming to cash in on Wall Street's lucrative interest in enterprise tech right now.
Brenon Daly oversees the financial analysis of 451 Research's Market Insight and KnowledgeBase products, having covered more than a quarter-trillion dollars' worth of deal flow for both national publications and research firms.
Sheryl Kingstone leads 451 Research’s coverage for Customer Experience & Commerce, which covers the many aspects of how customer experience is a catalyst for digital transformation. She oversees the company’s coverage of a variety of customer experience software markets spanning ad tech, marketing, sales, commerce and service.
Keith Dawson is a principal analyst in 451 Research's Customer Experience & Commerce practice, primarily covering marketing technology. Keith has been covering the intersection of communications and enterprise software for 25 years, mainly looking at how to influence and optimize the customer experience.