M&A Trends in the Software Industry

Blog
April 27, 2022

Across most industries and most geographies, 2021 was a very active year for M&A. The Software industry was no exception. As shown in the chart below[i], quarterly US M&A transaction announcements in the Software industry hovered around 400 throughout 2021, topping out at 423 transactions for the quarter ended September 30, 2021 (Q3-2021). This was a significant quarter-over-year increase (50%) compared to 267 transactions for Q3-2020.

Drilling down a level, the chart shows that the majority of transactions have consistently occurred in the Application Software segment, home to many Software-as-a-Service (SaaS) businesses as well as other “as-a-service” businesses (e.g., Platform-as-a-Service, Data-as-a-Service, Marketing-as-a-Service, Security-as-a-Service). Application Software includes, but is not limited to, the following:

  • Application Service Providers (ASPs)
  • Customer Relationship Management (CRM) Software
  • Document Management Software
  • Enterprise Resource Planning (ERP) Software
  • Industry Specific Software
  • Supply Chain Management Software

What were the factors contributing to a robust 2021 M&A environment? One factor likely was the push by organizations to improve digital capabilities, modernize legacy IT systems, and a continued shift to cloud computing. And of course there is always the opportunity for companies to expand market share by snapping up a competitor. Other factors at play in 2021 included, but were not limited to: increasing valuations; low interest rates; SPAC popularity; available cash on balance sheets; and increases in private equity and venture capital fundraising.[ii]

At 355 M&A announcements, Q1-2022 activity in the Software industry was a bit lower than the preceding four quarters. Selected notable transactions for Q1-2022 included the following [iii]:

Click here to expand the chart above. 

With 2021 being such a big year for M&A in terms of transaction volume and deal size, it may not be repeatable in 2022. Beyond that general hurdle, there are some factors that seem to be creating uncertainty at present. These may include: rising inflation; Federal Reserve actions to increase interest rates; the ongoing impact of COVID-19; supply chain disruptions; volatility in energy prices; and labor shortages.

Variables such as these, in addition to potential ripple effects from the war in Ukraine, will impact companies within the Software industry to varying degrees. Whether the trend in Software industry M&A throughout the remainder of 2022 can stay on pace with recent quarters remains to be seen.

In addition to assurance and tax services, Aronson is available to assist technology firms with pre-acquisition financial due diligence and post-acquisition purchase price allocation analyses. We can also help you navigate the GAAP intricacies of business combination accounting and other complex reporting and disclosure areas.


[i] Based on information obtained from S&P Capital IQ. Includes U.S. target companies only.

[ii] “Tech M&A Outlook 2022: Another year for the ages?”, Brenon Daly, S&P Global Market Intelligence, January 24, 2022.

[iii] Information obtained from S&P Capital IQ.

[iv] A consortium of private equity firms had agreed to acquire Zendesk, but Zendesk’s Board of Directors rejected the unsolicited proposal. See “Zendesk Terminates Deal With SurveyMonkey Parent”, Denny Jacob, The Wall Street Journal, February 25, 2022.