Why is m&a hot in EDA when public company values are down? Our June 2016 EDA Market Update

Jun 16, 2016

Why is m&a hot in EDA when public company values are down? Our June 2016 EDA Market Update

Enterprise Data, Market Update, Newsletter, Report, Startup, Trends, Valuation , 0 Comments

Dear Clients and Friends,

Our latest report on values and trends in the Enterprise Data and Analytics space (“EDA”) is HERE. As you will see, merger & acquisition activity in the EDA space continues to be strong – and m&a values high – in spite of the recent decline in market value for several publicly listed companies in this space. In fact, over the past few weeks we’ve seen several $1 billion+ acquisitions of public companies, including

  • Vista Equity (San Francisco, CA) agreed to acquire Marketo (NASDAQ:MKTO) for $1.7bn in cash;
  • Salesforce (NYSE:CRM) agreed to acquire Demandware (NYSE:DWRE) for $2.9bn in cash; and
  • Thoma Bravo (Chicago, IL) agreed to acquire Qlik (NASDAQ:QLIK) for $3bn in cash.

These were three strong companies acquired by one stronger/larger one (Salesforce) and two well respected private equity firms. It’s a sign of confidence in turbulent times. And these three were not the only transactions this month. See the report that follows for information on the acquisitions of Argus Media, Market Metrics / Matrix Solutions, RigData and more.

As you will see in the following report, valuations in the EDA space are strong by most rational standards – the public companies we track average 4.6x LTM revenue and 17.6x LTM EBITDA. Nevertheless, some in the sector bemoan the fact that average sector valuations dropped earlier this year following disappointing earnings and concerns over slowing top-line growth. That’s life. Values are driven by expectations for future growth, when those expectations are high, values are high – and vice versa. Expectations for growth in the EDA sector are still quite strong – and that’s part of why m&a values are strong – even if the public company values are not as strong for some firms. Further, the EDA sector has matured a lot over the past three years and that too often leads to consolidation opportunities. We are aware of several EDA firms that are exploring strategic alternatives. They should go for high prices.

The aforementioned acquired public companies (Marketo, Demandware, and Qlik) were subject to significant share price declines in Q1’16. Nevertheless, the acquirers all saw past the short-term market movements and paid premium valuations to acquire premium businesses.  We expect to see more deals like this in the not distant future.

We expect continued m&a and investment interest in the EDA sector. The participants check multiple boxes for acquirers and investors: cloud-based, fast growing, large total addressable market (TAM), and in markets with attractive tailwinds that should support future growth. We are active in the enterprise data & analytics space and are excited that the market continues to be strong for these businesses. We would be happy to discuss how we could help your business achieve its strategic goals – please do not hesitate to contact me or Jeff Trongone, our resident expert.

Sincerely,

Ken

 

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