Year-End Software M&A Update and 2012 Outlook

We expect M&A activity to remain steady for 2012 and possibly uptick further if the lending environment eases globally.  While Europe is in economic turmoil, the U.S. is stabilizing.  Emerging markets such as Brazil, Argentina and China are all on the upswing and in growth mode.  We expect some financial buyers (private equity) to remain on the sidelines while strategic buyers (companies) will acquire to capture growth. Buyout firms accounted for around 16 percent of company takeovers in 2011.

Volatile equity markets slowed mounting U.S. deal activity in the third and fourth quarters, following growing deal momentum in the first two quarters of 2011.  In light of concerns over European debt and a pullback in financing, U.S. merger and acquisition activity in the second half of 2011 was driven by well-prepared dealmakers focused on executing acquisitive growth strategies and availability of businesses with strong fundamentals– a key trend expected to continue into 2012, according to PwC's Year-End U.S. M&A Outlook.

Sellers now are looking for both speed and certainty in a deal, and also pursuing various alternative options and scenarios as they proceed as a way of maximizing the asset’s value. With sellers in the driver's seat, buyers must remain poised and ready when deal negotiations continue for a prolonged timeframe. Overall, the M&A markets are on track to stabilize further and increase overall over the next few years.

A few M&A highlights for 2011:

·         The most active acquirers within the Software Industry through Q3 2011 were EMC Corporation and Google Inc. with 10 acquisitions each.

•        Vista Equity Partners was the most active financial acquirer during Q3 2011 with 5 acquisitions: Thomson Reuters Trade and Risk Management Business, Sage Healthcare Inc., CompuLaw LLC, Client Profiles, Inc. and CyberShift, Inc.

·        The largest transaction for the third quarter as well as the 1st 3 Quarters of 2011 was the acquisition of Autonomy Corporation plc by HP for $10.28 billion and represents a 10.8x revenue multiple and a 24.5x EBITDA multiple.

·        Total transaction volume in Q3 2011 for Software companies decreased by 11% over Q2 2011, from 366 to 324 transactions.

·        Total transaction value in Q3 2011 for Software companies decreased by 22% over Q2 2011, from $29.9 billion to $23.4 billion.

·         Median EBITDA multiples in Q3 2011 remained largely unchanged from the last quarter, at 13.6x.

·         Median revenue multiples in Q3 2011 remained nearly the same, at 2.3x times revenue.

For more information and to download the full report (free), go to:   www.generationequityadvisors.com