Enterprise Software M&A

By Mustafa Bayramli (UPenn), Gurneek Gill (UCL), Eve Bouffard (McGill), and Abilash Prabhakaran (MIT)

 

I. Industry Background


The COVID-19 pandemic created an unprecedented demand for software that enables seamless, robust remote work. The need for cloud integration became essential for online collaboration. Nonetheless, post-COVID practices have in fact become established now as workers have become accustomed to a more adaptable, hybrid office setup. Despite early investment companies made into virtualising and digitalising their setups in 2020, there was a continued demand into early 2021 from companies trying to make sure that teams had even more efficient and continuous access to their technological platforms, be it at home or the office.


Thus, in the first half of 2021 (H1 2021), the sector still rode the wave of the post-pandemic momentum that it gained, as a record-breaking $124 billion was spent on enterprise software transactions, 44% of which came from Private Equity buyers; the highest its ever been. These financially motivated PE backed deals have been targeting verticals from areas such as e-learning and education management technologies since such solutions thrived when so many people were at home.


While deal value in H1 2021 was $12 billion higher than during the peak of the pandemic in first half of 2020 (H1 2020), there was lower deal volume in the first 6 months of 2021, where only 751 deals were seen; slightly smaller than the 836 deals seen in the same period of 2020. The increase in overall deal value was largely down to companies’ higher achieved revenue multiples which in turn led to huge EBITDA multiples being paid out in H1 2021. This shows the profitability that software enterprises created from the sustained demand for remote work systems even after the height of the pandemic. Consequently, buyers from all industries were seeing value in increasing bids to help digitalise and develop their own offerings.


II. Qualtrics - Clarabridge


On July 29th of this year, experience management (XM) provider Qualtrics announced that it entered into a definitive agreement to acquire Clarabridge, a Reston, VA-based Software-as-a-Service (SaaS) company specializing in omnichannel conversational analytics. The all-stock transaction valued the target at $1.125 billion. Qualtrics will complete the acquisition in Qualtrics Class A common stock based on a fixed number of Qualtrics shares and a share price of $37.33. Morgan Stanley & Co. LLC is serving as the financial advisor to Qualtrics, and Qatalyst Partners is serving as the financial advisor to Clarabridge.


It is hard to stress the strategic importance of the Clarabridge sale to Qualtrics. Listening to the target customer base and tailoring the product to its needs have become increasingly crucial to sustaining competitive advantage. With Clarabridge, Qualtrics aims to better help enterprises with connecting and engaging with their customers. Clarabridge’s AI-powered platform allows companies to analyze customer feedback sourced from support conversations, chat, social media posts, etc. Qualtrics stock price closed at $41.73 or 5.6% higher one day after the announcement, reflecting the positive investor sentiment around the strategic move.


III. McAfee Enterprises - FireEye Products


On September 30th, private equity firm Symphony Technology Group (STG) announced that its portfolio companies McAfee Enterprise and FireEye’s Products will merge to create a $2 billion cybersecurity giant of 5000 employees and 40,000 customers worldwide. The new entity will be led by former Blackberry and Cisco executive Bryan Palma, while Ian Halifax, CFO of McAfee Enterprise, will act as CFO.


Initially created as a subsidiary of McAfee Corp., McAfee Enterprise provides industry-leading internet and cyber security solutions for businesses. In an attempt to sharpen focus on consumer technology, McAfee Corp. announced in March the sale of McAfee Enterprise to STG for $4 billion. With over 85% of the Fortune 100 companies being customers of McAfee’s Enterprise business, the subsidiary has been integral to ensuring the protection of the digital assets of the largest enterprises in the world (health care, banking, retail). Other important users of McAfee Enterprise products include police departments, airports, city governments, and universities.


FireEye specializes in the detection and prevention of major cyberattacks and provides automated threat assessments and malware protection against cyber threats for small, medium, and large enterprises. In June, the company announced the sale of the FireEye Products business and the FireEye name to STG for $1.2 billion. The deal, which is expected to close in the fourth quarter of 2021, will separate FireEye’s security products from its parent company Mandiant’s controls software and services, enabling both organizations to accelerate growth investments, pursue new go-to-market pathways, and focus innovation on their respective solutions. 59% of FireEye Products’ customers are computer software and IT companies, followed by financial services, governments, and higher education.


By merging McAfee Enterprise and FireEye Products, STG aims to solidify its position within the U.S. Enterprise Cyber Security Solutions market, expected to grow at a CAGR of 12.1% for the next 4 years. With the merger, STG wants to leverage the new entity’s integrated security portfolio to offer a differentiated, all-in-one enterprise cyber security solution that would compete against the market’s largest players, namely Cisco Systems, Inc., IBM Corporation, Intel Corporation, and Akamai Technologies, Inc., but also against innovative and younger firms like Crowdstrike.


Concerning the merger, STG Co-Founder and Managing Partner William Chisholm said:


“Cyber risk is the number one threat facing modern organizations and we are excited to advance our growing portfolio of cybersecurity companies. Given Bryan and Ian’s respective experiences leading transformations, we are thrilled to partner with them to unlock value in the cybersecurity market.”

Goldman Sachs & Co. LLC served as financial advisor to Mandiant whereas UBS Investment Bank and Jefferies LLC acted as financial advisors to STG. UBS Investment Bank and Jefferies Finance LLC provided financing for the transaction.


IV. SpotOn - Appetize


On September 20, 2021, San Francisco-based company SpotOn Transact, Inc. announced the acquisition of Los Angeles-based point-of-sale (POS) software developer Appetize Technologies, Inc. for $415 million in cash and stock. The deal is funded with a $300 million Series E raise led by Andreessen Horowitz and will make SpotOn one of the world’s largest organizations in the Cloud POS business alongside Square, Inc., Lightspeed Commerce, Inc., Shopify Inc., and Toast, Inc.