October surprise

With almost 10 full months of the year behind us, strategic acquirers are spending more on tech companies than at any point since 2015 and with higher multiples to boot, setting the tech M&A market in pursuit of a new high. Yet the sudden stock market dip threatens to snuff out the spark that started the conflagration.

According to 451 Research’s M&A KnowledgeBase, acquisitions of technology vendors have fetched a collective $460bn, a pace that puts the annual total near 2015’s record haul of $577bn. Although a rising cadence of private equity deals has contributed to that, the bulk of the gains comes from strategic acquirers, which have so far spent $352bn picking up tech targets, reversing a two-year decline in corporate acquisitions.

Historically active tech buyers such as Adobe, Microsoft, Salesforce and SAP have all inked $1bn-plus purchases this year, while last year none of them did. Adobe has done it twice, reaching for Magento and Marketo and paying north of 10x trailing revenue for each, a mark it’s never paid before for a target with meaningful revenue. Adobe’s not an isolated case. The average revenue multiple paid by a corporate acquirer across the 50 largest deals stands at 5.8x, almost a full turn above last year’s average, according to the M&A KnowledgeBase.

A rising stock market has provided some of the impetus. In the M&A Leaders’ Survey from 451 Research and Morrison & Foerster, 71% of respondents said that the uptick in public stock prices was a ‘strong’ or ‘very strong’ factor in the surge of corporate acquisitions, rating it higher than any other factor. When we fielded that study in early October, the S&P 500, building off its gains in 2017, was up 8%. In the weeks since, it’s given back most of the year’s progress, which could dampen the historically high multiples.

Subscribers to 451 Research’s Market Insight Service can access the full report on the M&A Leaders’ Survey from 451 Research and Morrison & Foerster, a semiannual survey of tech M&A practitioners that’s now in its fourteenth edition.