Market Update

Pigs Get Slaughtered. Our February 2018 Market Update

February 2018

Dear Clients and Friends,

Our report found below 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 see below for our latest February Market Update.

There’s an old saying in our business: Bulls and Bears make money; Pigs get slaughtered.

We are living in good times: in spite of a recent pull back, global equity markets are still up more than 20% over the past 12 months; there is something like a trillion dollars of unspent capital committed to financial sponsors and in the coffers of corporations globally. Interest rates may have ticked up a smidge but they remain at historic lows; and banks seem eager to lend.  According to a survey by Bloomberg, 85% of the largest global investment banks and the OECD all expect 2018 to see continued global economic growth and continued growth in the equity markets. M&A values are strong. We’re busy. But we are beginning to see signs of greed. And that is worrying.

Shortly before the tech market crash of 2000, we were closing deals at a rapid rate – like now. But a few clients got greedy. One, a small, growing, publicly traded, technology-enabled information company, was trading at more than 5x revenue – a level not justified by fundamentals – but such was the market then. We brought in offers from credible buyers at 100% above the company’s market price. The CEO turned it down cold – he wanted a 200% premium. The buyers balked. Shortly afterwards, the market crashed and his stock price plunged 90%. It never recovered. In 2007 and 2008, we saw similar phenomena. We got a lot of good deals done. But a few sellers saw a strong market – and insisted on unreasonable values. Buyers balked. And then they got slaughtered. Now its déjà vu all over again. 

We’re busy. We’ve helped six clients close some very good deals in nine months. But twice recently, sellers walked away from offers that were over the top from a rational value perspective – believing that they can get more from someone else later. So here is the lesson: the market is strong and good deals are getting done. In fact, some of the more interesting recent InfoTech m&a transactions, trends, and values are in the report that follows… But it helps to remember that buyers have unique needs at a moment in time that may not reoccur, economic cycles don’t last forever, and, pigs get slaughtered.

A few of the more interesting recent transactions over the past month include:

  • SS&C (NASDAQ:SSNC) agreed to acquire DST for $5.7bn, valuing the company at an implied 2.5x LTM revenue and 11.1x LTM EBITDA,
  • Silver Lake and P2 Capital Partners agreed to acquire Blackhawk for $3.5bn, valuing the company at an implied 1.8x LTM revenue and 25.4x LTM EBITDA,
  • SAP (DB:SAP) agreed to acquire Callidus for $2.4bn, valuing the company at an implied 10x LTM revenue,
  • RELX (LSE:REL) acquired ThreatMetrix for $830mm,
  • GoDaddy (NYSE:GDDY) has agreed to acquire Main Street Hub from Vista Equity Partners for $125mm.

For the fifth year in a row, Institutional Investor has named me as one of the most influential people in tech finance. It’s always fun to be on these lists. You can read more about the company I keep, here. Most of them deserve the distinction much more than I.

Please see below for more of our February Market Update below.

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