In the third quarter of 2019, there was a sudden surge of mergers and acquisitions witnessed in the global software sector. According to a report by GCA Altium, this quarter recorded the highest volume of deals in the last two years.
The global software market is growing exponentially. The GCA Altium report recorded 384 merger and acquisition deals getting closed in the Q3 of 2019, which is about a 7% increase as compared to Q2 (359) and 6% more than Q3 of 2018 (363). These numbers definitely support the expert forecasts of mergers and acquisitions, becoming the most successful growth strategy of big or medium scaled software firms in 2020.
Transactions in the cybersecurity sector reinforced the significant rise in mergers and acquisition deals. The one leading the trend was Broadcom’s $10.7 billion acquisition of Symantec, Silicon Valley-based enterprise security firm. Another critical deal was done by VMware, which completed the acquisition of Carbon Black, which is an industry leader in cloud-native endpoint protection at $2.1 billion. This acquisition was far-sighted with the plan to open a data center in Australia as part of its goal to strengthen its market position.
But, shockingly, even if the volume of mergers and acquisitions increased in Q3, the overall value of transactions has dipped significantly from $39 billion recorded in Q2 to $22 billion in Q3. The recorded dip in the value has raised a lot of questions as it completely contradicts the situation in Q4 2018. In the last quarter of 2018, mergers and acquisitions were almost four times higher in value at about $82 billion, a result of a more significant number of mega-deals. A few experts also suggest that the $34 billion deal of IBM acquiring Red Hat turned to be the game-changer.
However, for small and mid-market companies, the number of mega-deals has dropped in the recent quarter, but the volume of deals has increased, reflecting a vibrant merger and acquisition environment. The industry is also witnessing a sudden willingness of tech giants like Google, Amazon, and Microsoft to collaborate with smaller sized companies to augment their capacities.
The GCA Altium report also revealed that the private capital transactions in the UK software market are on the rise. The rise is experienced both in terms of deal value and volume. There were about 222 deals in Q3 2019 — the second-highest for two years — with a value of $17 billion, which is almost a 13% jump compared with the previous quarter. Commenting on the interest in public markets, GCA Altium further highlighted 11 new listings worth $80.6 billion since the beginning of 2019. These include firms like – workplace messaging service Slack with a huge market capitalization of $19.5 billion and Zoom, US-based video communications platform for $15.9 billion.
The GCA Altium’s report was followed by an analysis conducted by CNBC in August. This analysis further suggested the Wall Street analysts and investors turn to software companies as more resilient investment opportunities. The global software sector will seek massive growth in 2020 as fluxes in manufacturing and supply chains will not impact it.