M&A 'In Vogue' In The Software Space

“Software M&A seems to be back in vogue as both strategic and financial buyers announced high-priced acquisitions,” BTIG’s Joel P. Fishbein said in a report.

salesforce.com, inc. CRM announced a $2.8 billion deal for Demandware Inc DWRE. Vista Equity Partners inked a $1.9bn agreement for marketing automation software player Marketo Inc MKTO.

While the multiples may seem “eye-catching,” the price premium is particularly interesting, as this exceeds 50 percent in both instances, Fishbein said. He added that these figures raised two obvious questions:

1. Why did the buyers agree to spend so much higher than the current market value for these assets?
2. Is the market currently mispricing these companies?

Fishbein pointed out that the answer was related to scarcity value, as both companies were “unique, high growth assets with a leading (or fast growing) market position and relatively favorable competitive dynamics.” He added that both were “pure-play on-demand application companies that are either disintermediating legacy competitors, or are already established leaders in their market.”

Other Deals

ServiceNow IncNOW acquired Brightpoint Security in all cash deal for an undisclosed amount. Thoma Bravo purchased Qlik Technologies IncQLIK for $3 billion, representing $30.50 per share.

The analyst believes that the software consolidation wave was only just beginning and many more deals could follow. BTIG has Buy ratings for Salesforce, Demandware and ServiceNow, with price targets of $100, $55 and $85, respectively.