Microsoft’s acquisition announcement is likely to fuel M&A frenzy in software space
So far in this series, we’ve covered various factors that prompted Microsoft (MSFT) to make an acquisition offer for LinkedIn (LNKD). Recently, Symantec (SYMC) announced the acquisition of Blue Coat Systems for $4.7 billion. In June 2016, Salesforce.com (CRM) and IBM (IBM) also announced acquisitions. IBM announced the acquisition of EZSource, an Israel-based (ISL) (EIS) company focused on application discovery. Salesforce.com announced the acquisition of Demandware for $2.8 billion. Demandware provides software to design e-commerce websites.
Microsoft’s offer follows the current trend of massive acquisitions in the software space. Software companies are finding it a challenge to make a successful transition towards the cloud. In the words of Steve Koenig, an analyst with Wedbush Securities, increased M&A is an “existential necessity” for these companies to achieve growth.
M&A deals in 2016 to date have already outpaced deals in the last four years
According to UBS Financial Services and as the above chart shows, 22 software acquisitions were announced in the first five months of 2016. That’s higher than the total number of software deals announced or finalized in each of the past four years. Moreover, the total deal volume in the first half of 2016 rose more than two times to $50 billion from $24 billion in the first half of 2015, according to Brent Thill, an analyst at UBS. He further stated, “Recent deal activity has shown meaningful acceleration across M&A metrics, and we expect the current pace of M&A to continue given the short list of high quality software assets in the market.”