Global Software Sector Deal Activity Surged in Q3 2020, Says Pagemill Partners, the Technology Division of Duff & Phelps

Deal volumes for software companies reached their highest levels in three years, with 466 transactions recorded between July and September 2020

London – Pagemill Partners, the technology division of Duff & Phelps, published data revealing the sharp bounce-back in software deal activity in Q3 2020, with 466 transactions recorded between July and September 2020. As boardroom focus shifted away from bracing-for-impact, a combination of strong operating performance and more readily available financing resulted in a surge of activity, with both deal volume and spending reaching levels higher than any other quarter over the last three years.

Large-cap deals also returned in full force over the last quarter, with aggregate deal values almost 90% higher than in Q3 2019. With deals above $1 billion (bn) valued in aggregate at $40 bn in the quarter, large-cap deal activity was the highest for the last six quarters.

The data goes on to show that buoyant public markets and strong investor appetite for SaaS business models have also created a vibrant IPO market, with a median increase in share price for software companies since listing sitting at around 80% this year.

Rory O’Sullivan, Managing Director at Pagemill Partners, comments: “Given the strong uptick in M&A activity in Q3 2020 and our own visibility into current deal activity with strategic and financial buyers, we are cautiously optimistic that the positive momentum in tech M&A in Q4 2020 will likely remain strong heading into 2021. However, we note that near-term political and macro risks are likely to continue to fuel periods of increased volatility, especially in the public markets.”

Pagemill Partners data also revealed that three times more special purpose acquisition companies (SPACs) have been formed in 2020 compared to 2019 (183 vs. 59, respectively), resulting in a record high of over $72.9 bn of capital raised year-to-date. Many of these ‘blank-cheque’ companies are targeted at tech and enterprise software.

Private equity median deal multiples for software buyouts, which currently sit at 4.0x revenues this year, remain comfortably above the 10 year average for the sector (3.2x) and, for the first time, eclipse both the 10 year average and current median deal multiples for strategic buyers (3.8x and 3.2x, respectively). This indicates investor confidence in the strong macro drivers for continued adoption and penetration of enterprise software, which are, in many cases, being accelerated by COVID-19.

About Pagemill Partners
Pagemill Partners, a division of Duff & Phelps, is a technology advisory firm located in the heart of Silicon Valley. Our global practice has regional teams situated across leading markets, including the U.S., Germany, France, the UK, Ireland, Canada and China. We are experienced at helping clients navigate the complex issues involved in cross-border transactions. Our strength stems from our technology sector focus, M&A and valuation expertise, deep strategic relationships and global reach.

About Duff & Phelps
Duff & Phelps is the world’s premier provider of governance, risk and transparency solutions. We work with clients across diverse sectors in the areas of valuation, corporate finance, disputes and investigations, cyber security, claims administration and regulatory compliance. With Duff & Phelps, the leading global provider of risk solutions, and Prime Clerk, the leader in complex business services and claims administration, our firm has nearly 4,000 professionals in 25 countries around the world. For more information, visit www.duffandphelps.com.

M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory, capital raising and secondary market advisory services in the United Kingdom are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.