An Over Abundant M&A Market Demands Differentiation and Positioning

Newletter SoftwareServices MAReport H121

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Investors’/buyers’ desks were flooded with investment opportunities in H1 2021, as deal activity reached record levels. Federal tax policy changes in tandem with the pandemic’s effect on prompting business owners to consider a sale resulted in an immensely overcrowded M&A market.

With greater volume comes greater scrutiny as software investors/buyers roll up their sleeves to carefully identify the best opportunities to realize a return on their capital. As a result, premium valuation multiples are no longer being awarded based on growth and scale alone – MRR retention, customer diversification, profitability, and post-pandemic positioning have all become important criteria for business owners looking to maximize enterprise value.

Competitive differentiation and niche market positioning have proven to be just as (if not more) valuable than maintaining strong KPIs. Consolidation is accelerating throughout Enterprise Software as the market demands comprehensive solutions and the elimination of redundancies. Investors/buyers across the sector must evaluate whether an acquisition target is an industry leader or an industry laggard.

In a competitive environment, companies are receiving premium valuations with double-digit multiples becoming increasingly common in the tech M&A market. Record valuations handed out by all types of buyers are among the main reasons why M&A spending has extended its rebound from its low of 2020 Q2.