Software M&A has been tepid in 2017, after a bonanza last year that saw companies such as LinkedIn Corp. and NetSuite Inc. come off the market. MoffettNathanson LLC calculates that the total value of transactions in the sector is down 59.1% from last year.
Things are due to pick up, though, MoffettNathanson analyst Adam Holt suggests in a recent report. Industry leaders such as Oracle Inc. (ORCL) , Salesforce.com Inc. (CRM) , Adobe Systems Inc. (ADBE) and Microsoft Corp. (MSFT) should be ready to strike their next deals soon, the analyst wrote.
Valuations have stabilized for many companies, Holt added, making it easier for buyers and sellers to agree on price. Firms such as Vista Equity Partners LLC and Thoma Bravo LLC have become more aggressive technology buyers, and with sponsors getting more comfortable with tech, Holt suggested that a private firm could launch a buyout worth $10 billion or more. As tax cuts that could benefit cash-rich tech companies have languished, the analyst added, "would-be acquirers have given up waiting for Washington and are moving forward with their agendas."
December marks the first anniversary of Microsoft's $26.2 billion purchase of LinkedIn, and Holt suggested that the acquisitive software group could soon be ready for another transaction. A spokesperson did not respond to a query on Friday.
Salesforce, which also declined to comment, completed its last multi-billion dollar deal, the $2.85 billion purchase of Demandware Inc., in July 2016.
Adobe has "gone a long time without a midsized or large deal," Holt wrote, and could use acquisitions to continue its pace of 20% revenue growth. The company did not respond to a query.
Oracle went on a spree last year and acquired cloud business software company NetSuite Inc. for $9.3 billion, utilities software developer Opower Inc. for $550 million, construction management software group Textura Corp. for $660 million and enterprise cloud company Ravello Systems Ltd. for $500 million.
The largest of the deals, NetSuite, closed in November. Holt suggested in the note that Larry Ellison's company "will likely be back in the market soon."
Ellison suggested last year that Oracle could be the first software company to reach $10 billion in cloud sales. The business generates about $6 billion in annualized sales now.
Acquisitions could push the software company closer to Ellison's goal, but the Oracle chairman noted an impediment to continued M&A during the question and answer session during a September earnings call. "There's no one left to buy," he said.
Ellison spoke without the benefit of reading Holt's report, which identifies a number of companies in attractive niches.
Potential digital marketing targets, for instance, include Sprinklr, Hubspot Inc. (HUBS) and Hootsuite.
Privately held Sprinklr develops software for customer experience management, or CXP, that combines monitoring of social media networks for posts about clients, marketing, media management and other services. The company works with large tech groups such as SAP SA (SAP) , IBM Corp. (IBM) and Microsoft. Cisco Systems Inc. (CSCO) executive chairman John Chambers joined Sprinklr's board in September.
CEO and founder Ragy Thomas said that the direct marketing databases, call center solutions, web analytics, email, and social media tools have existed as isolated silos, though companies are now recognizing customer experience management an industry category. Adobe, for instance, announced a new suite of customer experience services in February.
Thomas compares customer experience software to supply chain management. "In the '80s and '90s, we saw the evolution of the Supply Chain Management as a category, and the consolidation of a landscape previously littered with inventory management, order management and other independent solutions,' he said. "Today, the same thing is happening with CXM. Consolidation will increase as companies are realizing that they need to solve the problem of siloed teams, disparate processes, and siloed data in order to improve the customer experience."
Hubspot, which has a $3.2 billion market cap, develops customer relationship management, marketing, sales and customer experience software. The company announced new social media marketing features that integrate with ad platforms on Facebook Inc. (FB) and Instagram in September. A Hubspot representative could not be reached.
Private outfit Hootsuite social media management software that the company says is used by more than 800 of the Fortune 1000. In August Hootsuite announced a new service that lets its software interface with Adobe Creative Cloud and Adobe Stock. The company declined to comment.
Potential targets in data analytics include Splunk Inc. (SPLK) , which has been acquisitive itself. The San Francisco company bought assets from IT analytics software company Rocana Inc. in October.
Other data companies include San Jose-based HortonWorks Inc. (HDP) , with a $1 billion market cap; Cloudera Inc. (CLDR) , a Palo Alto, Calif., company with a $2.2 billion market cap; and New Relic Inc. (NEWR) of San Francisco, with an equity value of nearly $2.9 billion. New Relic declined to comment.
Cloud infrastructure targets include ServiceNow (NOW) , which has a $21.3 billion market value been acquisitive on its own. "ServiceNow is always on the lookout for technology and talent acquisitions that can enhance and expand our customer experience in automating, simplifying, digitizing and optimizing work," a spokeswoman said. The company formed a venture capital unit last year, which purchased customer experience technology company Telepathy in September.
Red Hat Inc. (RHT) of Raleigh, N.C., which is worth about $21.5 billion, announced a technology collaboration with Alibaba Holdings Group Inc. (BABA) in October, is another cloud infrastructure company that Holt suggested could draw interest. Red Hat declined to comment.
The disparate cloud infrastructure group includes Atlanta-based Internap Corp. (INAP) , a company that owns data centers and has a roughly $390 million market valuation. Internap has said previously that it will look for tuck-in acquisitions, a spokesman said in an email. The company's board "takes its fiduciary responsibilities very seriously, and just like all public companies, on any given day could be either an acquirer or an 'acquiree,' " he added.
Other potential cloud targets include Twilio Inc. (TWLO) , which has a $3 billion market value and creates messaging, voice and video apps for software developers. Twilio, which did not respond to a query, added former Oracle CFO Jeff Epstein to its board in July. Okta Inc. (OKTA) creates software that lets IT groups manage employee access to applications and devices, and could attract interest. The company, worth $2.75 billion, declined to comment.
Companies that develop software for specific industries-or verticals-could also draw interest, Holt suggested. RingCentral Inc. (RNG) develops cloud voice and communications software and has a $3.25 billion market value. Former Yahoo! Inc. CFO Kenneth Goldman joined the board in June. The company declined to comment.
Other vertical software companies include SS&C Technologies Holdings, Inc. (SSNC) , which develops software for the financial services industry and has an $8.6 billion market cap; Guidewire Software Inc. (GWRE) , which develops software for insurers and is worth $5.8 billion; and Athenahealth Inc. (ATHN) , which develops software for hospitals and physician groups and has a $5 billion market cap. Athenahealth said in August that it is conducting a wide-ranging review that will examine splitting the roles of Chairman and CEO Jonathan Bush and other operational, financial and strategic changes. SS&C, Guidewire and Athenahealth did not respond to queries.