Information Technology 2010: M&A and Financing Outlook
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on the sidelines in GRC M&A. The Archer deal is the latest in a GRC consolidation wave that started with the acquisitions of Paisley Consulting, Cura, Axentis, and Brabeion over the past twelve months. Archer is one of the several pure-plays remaining in the GRC sector, and we believe its acquisition will have transformational implications for the industry.
Compliance content players such as Wolters Kluwer, Thomson Reuters, and Moody’s have been aggressive acquirers on the business side of GRC as well.
In IT-GRC, there has not been a meaningful transaction that involved an enterprise software acquirer since the acquisitions of Virsa and Logical Apps by SAP and Oracle, in 2006 and 2007, respectively. EMC is once again leading the market in a sector that is characterized by huge market demand. We expect the larger enterprise software incumbents to follow suit as the pool of viable GRC platform targets continues to shrink.
Web Content Management and Marketing Automation
During the past 12 months, the Web Content Management (WCM) and Online Marketing sectors have experienced dynamic changes with M&A transactions involving Autonomy acquiring Interwoven, Adobe acquiring Omniture, and OpenText acquiring Vignette. These have paved the way for further consolidation and investment.
In January 2010, SDLTridion acquired Fredhopper to target retailers with online marketing capabilities; in February 2010, WCM and .NET player DotNetNuke announced a new round of financing; EMC announced an equity investment in FatWire for WCM; and OpenText returned to the M&A market to acquire Nstein.
Cascadia Capital has tracked approximately 85 M&A transactions in Enterprise Content Management (ECM), WCM, and Marketing Automation software spaces since the beginning of 2006. The principal take away from the data is this: M&A volumes and transaction multiples continue to increase over time—a clear indication that this theme is maturing rapidly and that larger strategic acquirers are prioritizing these software and service vendors higher up their M&A roadmaps. This was true even in 2008 and 2009, when software M&A volumes in general were down by more than 20 percent and despite this, there were 34 transactions in this theme.
In specific transactions, we are seeing premium multiples being paid for pure play vendors that demonstrate greater than 30 percent annual growth rates or whose technology is viewed as highly strategic to the acquirer. We are also seeing premiums being paid for businesses with at least 50 percent on-demand or hosted revenue. Discounts are being placed on companies that continue to generate a bulk of the revenue base in services, which is a major problem for the portion of the marketing market that is closer to the creative side than to the technology side.
The data is also a testament to the rate at which major technology bellwethers are moving into the space via acquisition: Acxiom, Alterian, Adobe, AOL, Autonomy, Convergys, Google, Interwoven, Microsoft, Omniture, Open Text, Oracle, Salesforce.com, SAS, and Yahoo! have all made acquisitions, in the last three years, and in the case of Interwoven and Omniture, were acquired themselves.
We believe that the accelerating convergence of WCM, Online Marketing Strategies, and Web Analytics technologies will continue to drive deal activity in 2010, as the broader M&A market continues to thaw, pure play vendors achieve scale, and the number of strategic acquirers from ECM, Marketing, and Data Analytics sectors recognize that they cannot compete effectively with their existing offerings, and are attracted by the growth of the independent vendors and their ability to deliver complementary solutions and customer-bases.
Additionally, growth equity investors are attracted by the high-growth and profitability of the leading players and the likelihood that WCM and Marketing Automation players will facilitate strong growth and convergence of online marketing, Web analytics and customer relationship management.
As the first quarter of 2010 comes to a close, we expect that IT M&A and financing activity will accelerate throughout 2010.