The M&A marketplace for app development and deployment firms - including the testing and QA specialists - is hot.
According to a report published by PE firm Capstone Partners, there were 123 merger deals in the first half of 2022, up 26.8% year on year. And with an average sales multiple of 3.7x revenues, values were higher than in the broader technology, media and telecoms sector (3.0x).
Rising sector demand, coupled with heightened competition for market share, has resulted in increased consolidation and favorable valuations for sector participants engaging in sell-side transactions, Capstone said.
Among significant recent deals is the planned acquisition, announced in May, by Perforce Software (owner of Perfecto) of Puppet Labs, which provides automation solutions for Cloud infrastructures. Another is TA Associates-backed Planview’s acquisition of Tasktop Technologies, which provides SaaS tools for developers and testers.
What’s driving deal volumes? According to Capstone, technology vendors increasingly need scale in order to keep pace with the demand for upgrading legacy systems while at the same time modernizing components and Cloud infrastructures (a major challenge especially for large financial firms). Demand for containerization, AI and security technologies in particular is likely to underpin this trend going forward for the remainder of the year, according to Capstone analysts.
Another major deal-driver is the sheer volume of “dry powder” funding at the disposal of private equity firms. For example, Thoma Bravo, one of the leading US private investors in technology companies reported an increase in assets under management from $76 billion in December 2020 to $114 billion at March 31, 2022.