Dear Clients and Friends,
Our report found here contains an update on m&a deals, values, and trends in the dozen+ segments of the information technology industry that we follow, and sometimes lead. Please click here for our January 2018 Market Update.
As our regular readers know, we follow this market closely – and we see several themes that InfoTech firms should be watching in 2018.
Theme #1: A move to recurring revenue models – and fast. Bankers talk about the attractive values afforded to SaaS and Cloud-based software applications. These are attracting investment dollars and customers. But so too are companies that use recurring-revenue models involving deployed data, services and technologies. Right now, investors are as focused on the target’s revenue growth and its revenue model as they are on the underlying technology. The cloud is huge; no doubt. But there remains a very large role for deployed software. The moral: get out of the license and maintenance revenue model. As my daughter says – “…it is sooo last century”
Theme #2: Embrace Blockchain. Like AI, Blockchain buzz is high, and so are investments. Results may still be scarce, but the number of firms working on Blockchain-based solutions is almost as mind boggling as the number of potential applications. We are seeing everything, from digital identification solutions (ids, digital voting, passports, birth certificates, etc.) to digital currency exchange (cross-border payments, money transfers); to smart contracts, real estate registers, and Blockchain data storage. (This could be huge!) If you aren’t looking at Blockchain-based solutions, you had better be looking over your shoulder. The disruptors are coming.
Theme #3: Watch cryptocurrencies. Clearly cryptocurrencies are attracting a lot of press, and money – much of which may be driven by hyperbole and FOMO, which has driven some to call the whole thing a sham. Not so fast. The hype will subside. But cryptocurrencies have their place. We love Kodak’s attempt to use its own KodakCoin to “empower photographers and agencies to take greater control in image rights management.” We don’t know if the effort will succeed. But it is the right type of application. Russia and Venezuela, on the other hand, misunderstand how cryptocurrency value is created. Read more here.
Theme #4: Be aware of China. China’s $1 Trillion(!) “Silk Road” plan involves more than just building a paved road to Europe, adding high-speed rail, and expanding ports. It also includes building information-technology leadership. China already has 29 InfoTech “unicorn” firms as well as at least another 54 “future unicorns”. They have names you may know such as Baidu (search, maps, social networking, security, entertainment, ecommerce, and mobile services etc.) and Tencent (social media, music, web portals, e-commerce, internet services, payment systems, smartphones, and multiplayer online games). And there are other companies you may not know – such as “Headlines Today”, a media company recently valued at $9bn; Alicloud; and IZP Technologies Group which is using big data to build a Visa-like cross-border payment system. The Chinese are coming.
Sure there are other trends: AI is coming; Cybersecurity remains hugely important; the mobile experience is now a sine-qua-non for virtually all b2c applications and (most importantly) now for most b2b applications. We’ll discuss them in another post.
Among some of the more interesting recent InfoTech m&a transactions, trends, and values discussed, we also note the following transactions:
•Thales (ENXTPA:HO) agreed to acquire Gemalto (ENXTAM:GTO) for €4.8bn (~$5.6bn), implying an enterprise value of $6.5bn and valuing the company at an implied 1.8x LTM revenue and 11.9x LTM EBITDA,
•Oracle (NYSE:ORCL) agreed to acquire Aconex for $1.2bn,
•Total System Services (NYSE:TSS) agreed to acquire Cayan for $1.1bn,
•Intuit (NASDAQ:INTU) agreed to acquire TSheets from Summit Partners for $340mm,
•Audax Private Equity (Boston, MA) acquired Corsearch for $140mm.