Signal Hill Blog: Analysis & Perspectives

There has been a slew of big M&A deal announcements in the tech sector the past week (Mint.com, NetOsQ, Omniture) and it certainly makes us feel even more comfortable for deals in Q4 as we near the end of September. This quarter as a whole has brought 15 big deals (over $100 million) and some of the highest multiples since the beginning of 2009 spread across our entire spectrum of IT sectors.

M&A multiples have more than doubled since the beginning of the year. In September alone, the biggest deals are boasting LTM EV/Rev multiples of between 3.6x and 17x. As of September 17, the median revenue multiple for deals over $100 million came to 3.1x — a big increase over the 2.5x median multiple for Q2 and 1.5x median multiple for Q1.

Software Transactions Over $100 Million

The most recent deal announcement — Adobe’s acquisition of Omniture, a provider of online business optimization software — has really caused some buzz in the market. The transaction rings in at a deal value of $1.7 billion (a 24% premium) with an enterprise value/revenue multiple of 5x. John Lovett, an analyst for Forrester, believes the deal brings in a new challenger for Web content management providers, while others say the Omniture deal (along with other deal announcements) is a good sign for tech start-ups since acquirers appear to be extending into and finding new markets as well as increasing web presence.

The biggest payout in terms of multiples goes to Intuit and its $170 million acquisition of Mint.com at an EV/Rev multiple of 17x. A day before the Omniture deal broke, CA announced its $200 million acquisition of network performance management provider NetQoS Inc at an EV/Rev multiple of 3.6x. Skype’s $2.7 billion acquisition by Silver Lake Partners (which could now be heading for some lawsuit trouble) is the largest of the deals for Q3, and also boasts a hearty revenue multiple as well at 4.5x.

The market appears to be well off the lows of Q1 and we expect there could be even more activity before Q3 rounds out at the end of the month. While deal volumes for all M&A are still lower (global deal volume as of September 11 was $1.34 trillion, down 37% from the same time last year), the big jump in deal sizes and multiples since the second quarter is a good sign. We believe there will be plenty of room for continued growth through the remainder of 2009 and expect a move to more normalized levels for M&A, particularly in the software sector, in 2010.

Q3 2009 Software Transactions Valued Over $100 Million