The U.S. information technology M&A market continued to cool off in April with the lowest monthly deal volumes of 2022.
The month saw 176 transactions in the sector, compressing 27.0% from the year-ago month, according to data from S&P Global Market Intelligence. That extended a trend that has seen M&A volumes drop by double digits each month since February.
However, a broader look at global technology and telecommunications activity revealed volumes that were still moving forward at a steady clip, even if values are headed downward. The global industry recorded 390 deal announcements in April, up from 283 a year prior, according to 451 Research data. However, the average deal multiple dropped to 3.7x for the first four months of 2022 compared to 4.2x for the same period in 2021.
The drop in deal valuations correlates to a drop in market valuations for publicly traded technology companies. U.S. publicly traded acquirers have announced fewer than half the number of billion-dollar deals as they did at this point in 2021, according to 451.
Meanwhile, private equity is picking up some of the slack.
The top M&A announcement of the month by value was Brookfield Business Partners LP's $8.42 billion agreement for CDK Global, a software solutions provider for automotive retailers and manufacturers. While the gross transaction value was the biggest announced in April, Brookfield will take CDK private for just 4.8x the company's trailing 12-month revenue. That valuation is historically strong, but it is well below the ratios seen from private equity firms consolidating the software industry in recent months.
One of the most active private equity tech consolidators, Thoma Bravo LP, was back in the M&A market in April with the second largest transaction of the month, the $7.46 billion takeout of cybersecurity firm SailPoint Technologies Holdings Inc.
Analysts and investors have been keeping an eye on the cybersecurity industry as a hot sector for consolidation. New technologies are consistently emerging in the business, demand for cybersecurity solutions has been ramping for years, and the sector is highly fragmented between many small and medium-sized vendors. That speculation intensified with Alphabet Inc.'s $7.55 billion acquisition of Mandiant Inc. in March, with one analyst calling the deal "the tip of the iceberg to a massive phase of consolidation" for cybersecurity.
Thoma Bravo will pay a premium to move the cybersecurity M&A conversation forward, paying 16.0x SailPoint's trailing 12-month revenue, compared to 11.1x paid by Google parent Alphabet for Mandiant. The cybersecurity sector is a particularly rich corner for information technology acquirers, with the average 2022 multiple landing at 8.9x as of May 9, almost on par with the 9.0x multiple averaged for 2021. Furthermore, Thoma Bravo is no stranger to outbidding its peers, averaging double-digit multiples for its cybersecurity acquisitions for the past three years, cresting at a 16.4x average deal valuation in 2020.
The SailPoint deal ranks as the fifth-largest U.S. info tech deal by gross transaction value for 2022, just behind the Mandiant deal. Thoma Bravo was also the buyer on the second-largest deal of the year: the $10.75 billion acquisition of enterprise software vendor Anaplan Inc. That deal's gross transaction value represented an enterprise value of 17.6x trailing-12-month revenue.
451 Research is part of S&P Global Market Intelligence.