Pacific Crest Names Possible Targets As Software M&A Surge Seen Continuing

The surge of software M&A deals that began at the beginning of this year is still in its early innings, according to research firm Pacific Crest. The firm says that the following software companies are the most likely names within the sector to become takeover targets: Zendesk (ZEN), Shopify (SHOP), Apigee (APIC), Tableau (DATA), and Imperva (IMPV).

WHAT'S NEW: The software M&A cycle could last until the end of 2017, if it follows the same pattern as the previous software M&A wave in 2011, Pacific Crest stated. Moreover, acquirers are starting to pay higher multiples for software companies, as Salesforce (CRM) paid over seven times Demandware's (DWRE) estimated 2017 revenue to acquire that company, according to the firm. Pacific Crest believes that analytics and vertical software-as-a-service companies, as well as healthcare software-as-a-service companies, could become takeover targets. According to Pacific Crest, the number of potential acquirers and the number of potential takeover targets have increased versus 2011, with healthcare software-as-a-service companies joining the party this year. Zendesk, which develops customer support tools, is growing quickly and trades at five times 2017 revenue estimates, while e-commerce solution provider Shopify is also growing rapidly and trades at 4.5 times 2017 enterprise value per share estimates, the firm said. Apigee has a platform for taking legacy applications to digital and is trading at two times 2017 revenue estimates, the firm stated. Analytics company Tableau is believed to have a market share of over 35% and is trading at 3.1 times 2017 enterprise value per share estimates, while Imperva has a "unique value proposition in data and application security," according to Pacific Crest.

PRICE ACTION: In late morning trading, Zendesk lost 1% to $26, Shopify added 0.5% to $29.75, Apigee gained 0.7% to $11.45, Tableau advanced 1.5% to $55.70, and Imperva was unchanged at $29.70

Disclosure: None.

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