When money is tighter, we see more M&A activity.
Oakbrook Terrace, IL (Vocus) March 3, 2008
2007 was a good year for software firms to go public, or do a merger or acquisition, concludes a special report released this week by software industry portal SoftwareCEO.com, part of the Computing Technology Industry Association (CompTIA).
The sixth annual report reveals that technology merger and acquisition (M&A) activity in the United States in 2007 totaled $268 billion, while initial public offering (IPO) activity totaled $15 billion. That means roughly 18 times as much money flowed through M&As as through IPOs, though an IPO remains the dream of many software company founders.
“The rule of thumb is that a software company can raise two to three times as much going public as through an M&A, but only if all the conditions are perfect,” said David Sommer, publisher of SoftwareCEO. “When money is tighter, we see more M&A activity.”
Software company M&A valuations were 2.5 to 3 times company revenues. Typical IPO valuations ranged from 6 to 10 times revenues, with some reaching much higher.
“Our numbers confirm that 2007 was a good year for software firms to go public,” Sommer said. “In fact, the criteria for going public became a little more forgiving in 2007. This tells us there was more money chasing more deals, and more investors willing to wait a little longer to see profits.”
SoftwareCEO tracked 23 IPOs for firms considered to be “pure software” or “software service” companies and analyzed the results across 18 different categories.
Other highlights of the report include (all values are medians in USD):
- The typical software company that went public in 2007 had revenues of $46 million and a net loss of $4.8 million. That was the worst income performance since 2000.
- Still, revenue multiples were the highest in four years, typically 9.8x.
- The typical software IPO firm sold 21.1 percent of its equity to raise $100 million.
- The total market cap at IPO time was $433.4 million.
- Since going public, share price typically went up 23.8 percent by year-end.
- The typical software CEO’s stake was worth $22.1 million at IPO time, increasing to $26.5 million by year-end.
For a complete copy of the report, and a link to the accompany spreadsheet, visit http://www.softwareceo.com/attachments/softwareceo/com021908.php.
SoftwareCEO is a resource-packed electronic newsletter and web portal built by software executives for software executives. It is Page One for software industry information and education on topics such as software marketing, sales, business, pricing, financing, and services. For more information, visit http://www.softwareceo.com/.
The Computing Technology Industry Association (CompTIA) is the voice of the world's $3 trillion information technology industry. CompTIA membership extends into more than 100 countries and includes companies at the forefront of innovation; the channel partners and solution providers they rely on to bring their products to market; and the professionals responsible for maximizing the benefits organizations receive from their technology investments. For more information, please visit http://www.comptia.org.