A new report from technology-focused investment bank ICON Corporate Finance, has revealed record-breaking tech deal activity in the first quarter of 2021, up 28 per cent on Q1 2020, with 268 deals announced.
Evidencing resilience within the sector and a huge appetite for Vertical and Enterprise Software organisations, ICON believes M&A activity is yet to see its peak, and could easily surpass the UK total of 711 tech M&A deals completed last year.
Digital transformation, fast-tracked by lockdowns across the world, has created a plethora of new digital solution providers that are grabbing the attention of overseas PE backed acquirers. Among these, UK Vertical Software providers are proving flavour of the month as PE houses look to buy, build and eventually sell. Corporate acquirers too are playing their part in an effort to gain an edge over rivals or to provide new revenue streams. The result has been valuations rising to near record levels.
ICON believes that Digital Transformation across all industry sectors, including Vertical and Enterprise Software will continue to accelerate, boosted in no small part by appetite from overseas investors. Last year a record-breaking 48% of all UK deals involved cross-border backing, a figure which could yet be surpassed in 2021.
Driven by cheap capital, competitive bidding, and insatiable demand from PEs in particular, the spate of M&A activity in the Vertical and Enterprise Software sector has seen several notable deals, including US-based Insightful Science (backed by Insight Partners) paying GBP500 million – a whopping 20-times revenues – for lab automation specialist Dotmatics, based in Bishop Stortford. Its data management platform helps in life science and chemical discovery.
Other major deals include the acquisition of Hoxton based Decibel – a leader in digital experience analytics which has an always-on, unsolicited digital feedback platform – by US based Medallia. Impressively, Decibel claim to be the only analytics software in the world that can identify, score, and prioritise every online user experience across the website and apps. Medallia paid GBP139 million cash or about 10x revenues.
Ideagen, which raised nearly GBP50 million for acquisitions last December, made its biggest ever deal in Q1, buying UK based document collaboration specialist Huddle for GBP28 million, or nearly three-times revenues.
In March, Ideagen acquired US-based Qualtrax for USD15 million, which was also around three-times ARR, and will add QHSE revenues from the likes of WalMart to push its US share of revenues to over 33 per cent. It stands out as one of the last UK listed sizeable software companies with a value of circa GBP700 million.
US Cyber-security company CrowdStrike was also busy, acquiring log management firm Humio for USD400 million (90 per cent cash). Humio, a London-based start-up launched in 2016, provides products to simplify streaming, aggregation, and management of logs collected from large cloud-based enterprise networks.
ClearCourse Partnership continued its acquisition spree buying PPM Software, which focuses on health practice management software. That makes 25 acquisitions mainly in the CRM/Payments space in just over two years.
Ascential plc sold Groundsure, which specialises in property and flood risk assessment, to ATI Global – the Australian legal technology, software and information services group – for GBP170 million. That’s equates to 8.5x revenues or 14x EBITDA based on EBITDA margins of 60 per cent. The deal comes hard on the heels of the GBP73 million sale last December of Glenigan to Byggfacta for 11x EBITDA, which too had similarly impressive margins.
Among the most aggressive acquirers, Access Group continued its buying binge with five acquisitions in Q1, in workforce management, cyber training, schools and payments.
Other notable activity included Idox’s sale of its Compliance business to Sponge Groupe, a digital learning business backed by Aliter Capital for £9m (1.7x revenues), and their Grants Consulting business to Silvertree for less than 1x revenue plus earn out.
Commenting on the vibrancy of activity in the Vertical and Enterprise Software sector, Brian Parker Head of M&A at ICON Corporate Finance, says: “It’s remarkable that this quarter was the busiest ever, given lockdown 2.0. It’s another great example of digital acceleration improving productivity with record numbers of deals closing, despite buyers and sellers not being able to meet.”
