Given the complex and challenging economic and geopolitical circumstances the world faced in 2023, businesses found it equally difficult to engage in successful and profitable merger and acquisition (M&A) activities. While banks focused on controlling inflation, the M&A market still suffered significantly and remained subdued due to ongoing geopolitical uncertainties linked to the conflicts in Ukraine and Gaza. These uncertainties made it difficult for businesses to make decisions and move forward with acquisitions, leading to a significant decline in M&A activity. What did M&A deals and multiples in the software field look like in Europe in 2023?
The situation M&A Deals & M&A Multiples in 2023
The KP Tech M&A Boutique report reveals that 2022 witnessed a significant decrease in the number of transactions, dropping from 1,243 to 893. This decline is even more pronounced when comparing the reported transaction volumes, which fell from €91 billion to €60 billion. Similarly, the quarter-on-quarter figures showed no increase in the number of transactions.
When it comes to acquisitions, there were three main large transactions which influenced the overall transaction volume. In the first quarter, the take-private transaction of Qualtrics (USA) took place, the second quarter witnessed the acquisition of SimCorp (DNK) by Deutsche Börse, and the year finished with the acquisition of Alteryx (USA). However, when the fourth quarter is compared to the same period in 2022, the improvement cannot be noticed due to the high cost of capital.
The Dach region couldn’t boast of a better result, as the number of transactions dropped by a staggering 41.5% when we compare the year 2023 with the previous one. The median valuation stayed at the 2.2x revenue level, but they stayed rather steady throughout the year. We can see how low the level in 2023 was when compared to the results from the pandemic times when it reached 3.9x of revenue.
SaaS-based businesses were not prone to a decline in deal activity when volume and value were analyzed. The median revenue does not also look more positive, with a reduction from 5.8 in 2022 to 4.6 in 2023.
Top three acquisitions in Europe in 2023
Despite the challenges that businesses had to face in 2023, the top three acquisitions that took place during the year 2023 were completed with significant amounts.
Starting with SimCorp A/S, which was acquired for €4.1 billion by Source at a multiple of 6.9 times revenue, the value of the transaction was surprising. The company provides investment management solutions for asset management, fund management, insurance, life, and pensions, among others. It operates globally, with a presence in nearly all continents, including North America, Europe, Africa, the Middle East, and the Asia Pacific. This acquisition positions the acquiring company as a leading global provider of investment management software, collaborating with some of the world’s largest asset managers. It can be considered the most successful acquisition of the year 2023.
There was a significant difference in the acquisition price for the next company, which was acquired for €1.15 billion. Edenred acquired Reward Gateway, a company that focuses on providing a platform for employees to communicate, receive recognition, participate in surveys, and access discount solutions. Through this deal, Edenred gained the opportunity to expand further and increase its market penetration.
Flexera recently acquired Snow Software for an estimated amount exceeding €900 million to enhance its capabilities in cloud-native platforms for IT spend optimization. Snow Software offers services including SaaS management, software asset management, and cloud cost management. This acquisition will enable Flexera to expand its IT Asset Management services and offer more comprehensive solutions. Snow Software has experienced tremendous growth, with its revenue increasing from $100 million to $175 million in 2022.
Global Valuation Multiples and Global Deal Multiples
A thorough analysis of the financial results when Global Valuation Multiples and Global Deal Multiples are concerned, proves that the year 2019 was so far the best for the M&A Sofware sector.
In 2018, strategic buyers had a median Enterprise Value to Last Twelve Months (EV/LTM) revenue multiple of 3.0x, whereas financial buyers had a significantly higher multiple of 7.0x. Over the years, the multiples for financial buyers have shown a downward trend, with a slight increase in 2021 before descending again in 2022 and 2023. In contrast, the multiples for strategic buyers have been more stable, generally fluctuating around the 3x mark, with a slight increase to 3.2x in 2023.
The average multiples for both types of buyers have reduced over the observed period, with the average multiple for financial buyers decreasing from 5.6x in 2018 to 4.7x in 2023. The average multiple for Strategic buyers has also decreased from 5.0x in 2018 to 4.7x in 2023, reaching parity with Financial buyers in 2023.
According to the report, larger target companies within the B2B Software Sector tend to command higher valuation multiples. The top quartile deals in each revenue category command a premium over the median, with the highest revenue bracket (greater than €100 million) showing the most pronounced premium. This premium ranges from 38% to 125% above the median, while deals in the lower quartile are offered at a discount of 2% to 6% below the median.
