The 2010s was the first decade without a U.S. recession or painful bear market. The 2020s is off to a rough start, but companies still must think about the future and opportunities to gain a competitive advantage. This undoubtedly includes investing in technology, which means the economic downturn will not inhibit the need to buy and sell software companies.
The Corum Group, the global leader in technology mergers and acquisitions, recently published its 2020 Tech M&A Report, which profiles 29 technology market sectors, key 2019 deals and valuation metrics, top buyers, financial trends, the Corum Index of tech M&A metrics and insight from industry luminaries.
Those looking to sell their technology company often wonder, “How much is my company worth?” The report’s “Market Valuations” analysis offers insight in this regard for six sectors, which are then broken down further by subsectors. Spoiler alert: In 2019, the most valuable companies were those that sold “Architecture / Engineering / Construction” (A/E/C) software, which netted valuations of 9.00x sales and 46.06x EBITDA.* Next were companies offering supply chain management software, netting 7.32x sales and 35.90x EBITDA.
The report explains that the high A/E/C valuations are driven in part by a trend in “Blue Collar Software.” Skilled labor occupations make up 60% of all workers, and their roles and industries are being transformed by disruptive technology – changing the way they build, sell, move, plant, harvest, inspect, maintain, repair and more, across multibillion-dollar industries like construction, agriculture, transportation, manufacturing and many others. Blue Collar Software is valuable because it addresses an underserved market and, in such practical industries, it directly improves companies’ bottom lines.
Another trend that drove A/E/C valuations is “Payment Stream Control” (PSC). Corum Executive Vice President, Rob Griggs, explains, “With offline and online commerce effectively merged, and every transaction a digital transaction, acquirers see significant value in controlling the digital streams of payments.”
PSC software that serves as payment pathways to vendors, utilities, service providers, etc. is particularly attractive to private equity firms because it can create increased value in unexpected sectors such as non-profits, property management and even narrower niches. PSC solutions also improve billing, invoicing, procurement, transaction processing and more, which can also be used for payment management, anti-fraud capabilities and real-time payment technology.
Griggs notes, “Anything that gets an acquirer closer to achieving Payment Stream Control has a built-in advantage in tech M&A.”
Blue Collar Software and PSC are listed in the report’s “Top Ten Disruptive Technology Trends for 2020.” To read about the other eight, you can either request a copy of the report by visiting the Corum Group’s web site or emailing Griggs directly.
*Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance without having to factor in financing decisions, accounting decisions or tax environments.
The Corum Group is the global leader in technology mergers and acquisitions, having brokered sales of more software and related technology companies than any firm in history and netting its clients more than $7 billion. On the second Thursday of every month, the Corum Group offers an update on tech deals, valuations and trends, which you can attend by registering at www.corumgroup.com/events.