Deal Tracker: June highlights realities of post-pandemic infotech M&A market

Information technology deals maintained their muted pace in June, and the megadeals that have propped up 2022's deal values also retreated.

The month saw 200 transaction U.S. announcements in the sector, down 27.3% year over year. More, June saw just one deal barely scratch over the $10 billion mark, while May had three transactions crest 11 figures.

The top information technology announcement in June was the $10.99 billion acquisition of Zendesk Inc. by a consortium of private equity investors led by Permira Advisers LLC and Hellman & Friedman LLC. That puts Zendesk's enterprise value at 6.9x its trailing-12-month revenue, a strong multiple even compared to the record valuations recorded in 2021, according to 451 Research. June's average technology and telecommunications deal multiple was 2.8x, while the average multiple in June 2021 was 5.7x, according to the 451 Research M&A KnowledgeBase.

* Review terms of June's largest U.S. information technology deal on S&P Capital IQ Pro. * Use our Transactions Statistics page to run a custom screen of M&A by industry or geography. * Learn more about the 451 Research M&A KnowledgeBase.

 

However, a few things about the Zendesk transaction still illustrate the challenged 2022 market. For one, when looking exclusively at private equity buyers in the technology M&A market, the average June deal multiple was 4.4x versus 7.1x in June 2021.

Secondly, Zendesk's consortium of acquirers will pay $77.50 per share. That is a 38.7% premium to the share price five days prior to the deal announcement but 35.7% below where shares were trading three months prior to the announcement. It is also a whopping 38% discount to the approximately $16.05 billion private equity bid Zendesk turned down in February when stocks were on the precipice of the current bear market.

The dramatic drop in Zendesk's value in the M&A market also highlights the thematic peak and decline in information technology valuations.

Zendesk provides software-as-a-service products related to customer support, sales and other customer communications. During the COVID-19 pandemic, these kinds of technologies soared in valuations as enterprises accelerated their digital transformation strategies to meet an increasingly virtualized marketplace. While the demand for digital interfacing may continue to define customer relations in the future, the realities of the post-pandemic market have dulled the premiums and urgency for such transformations, according to a recent S&P Global Market Intelligence report.

The second largest transaction announced in February was the $1.88 billion acquisition of Brightly Software Inc. by Siemens Smart Infrastructure, another enterprise-focused software development company that serves government, education and healthcare businesses.

Siemens Smart Infrastructure is the internet of things technology arm of industrial conglomerate Siemens AG, providing solutions for smart power grids, smart buildings and smart electrification. Siemens has been rapidly expanding its information technology capabilities as industrial demands increasingly overlap the technology industry. Siemens has announced 15 technology, media and telecommunications M&A transactions since the beginning of 2021, according to S&P Global Market Intelligence.

451 Research is part of S&P Global Market Intelligence.