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The Software & Services sector continues to see strong M&A activity and healthy valuation multiples as sponsors lead the way again in Q1’19. Private equity (PE) buyers have not slowed down since 2018 and remain bullish on value, putting up a median LTM revenue multiple of 5.5x for software acquisitions, compared to approximately 4.5x during the same quarter last year. Some notable transactions include K1’s roll-up in the recruiting software space and Thoma Bravo’s $3.7 billion acquisition of mortgage automation SaaS provider Ellie Mae.
Healthcare Information Technology (HCIT) is a sector that we are closely monitoring as the momentum observed in 2018 extended through Q1’19. Ever since Amazon’s stunning debut in the sector with its acquisition of PillPack, the market has been clouded with anticipation and uncertainty around how healthcare leaders will respond to the tech-giant’s emergence in the space. Our market observations and industry research suggest that sub-verticals, such as data security, patient-provider communication and patient-oriented self-service technology, will be key areas of focus for future M&A activity. Hill-Rom’s acquisition of Voalte, a hospital communication platform, for $180 million (4.5x LTM revenue) is a recent example of this investment trend.
As software and technology play an increasing role across all industries, we expect verticalized application software to yield premium valuations from buyers who can leverage these solutions in their daily operations.
We hope that this report serves as a useful tool for you. As you evaluate opportunities, please feel free to call us at 310.478.9000 for additional insight.