The six-year shopping spree for enterprise software companies is starting to slow down, says tech market advisory firm Hampleton Partners. After a period of sustained M&A activity for firms providing cloud-based applications, artificial intelligence, and other related technologies, the latter half of 2019 saw demand dropping off as private equity firms and big buyers pressed pause on purchasing.
The firm tracked 620 mergers and acquisitions internationally involving enterprise software companies over the last six months of 2019 – down from 669 transactions in the first half of the year. Regardless of the decline in deals made, the overall year showed an uptick in activity from 1,241 companies acquired in 2018 to 1,289 in 2019. Miro Parizek, founder of Hampleton Partners, says that peak valuations for business tech firms remain unaffected and he is optimistic about the future.
“Despite the slight cooldown in deal volume, the overall picture indicates that we’re entering 2020 with continued strong demand for enterprise software assets,” Parizek explains. He identified buying trends for AI-driven customer service software such as chatbots, 3D software that leverages virtual reality, and education and training technology. SaaS companies are still a favorite option while data management software is a popular choice for organizations looking for support with compliance, such as the EU General Data Protection Regulation.
"The never-ending need for businesses to invest in IT, applications and specialist software has also encouraged rival tech giants like Google and Microsoft to increase their M&A activity in the sector, bumping them back up on the list of top enterprise software acquirers over the past 30 months."
According to the report, WiseTech Global was the most active software buyer, showing 23 acquisitions made over the last thirty months. Vista Equity Partners and MRI Software shared second place with 17 transactions each. In that same period, software giant Microsoft made 12 tech firm purchases – including data insight specialists Movere Inc., java-enhancing firm jClarity, and cloud migration experts Mover Inc. Google’s transaction tally came in 10 with notable deals like IaaS provider CloudSimple, software storage outfit Elastifile, and big data analytics firm Looker.
Others see the slowdown differently than Patrizek and believe it is a sign of things to come. “History has shown that acquirers pull back when the economy turns,” said Gartner senior research director Max Azaham, pointing to uncertainties surrounding the US-China trade deal, Brexit, and the rise of the Coronavirus as examples.
Still, many believe it's just a brief break as companies take stock of their new acquisitions. Chief executive officer and co-founder CB Insights think the upward trend over the full year more accurately reflects what's happening in the market. Like Patrizek, he expects M&A activity to pick up again over the months ahead.