Following up on strong deal volume in March, April continued to accelerate information technology M&A activity as deep-pocketed buyers paid hefty premiums to pad their tech portfolios.
Sector deal volume was up 69.4% year over year in April at 188 transactions announced. While that was down from the 250 deals announced in March, April clocked the two biggest deals of the year for information technology, and saw five deals with announced transaction values over $1 billion.
That April activity pushed transaction values in the tech and telecom industry up to $117 billion for the month, the third-highest month in history recorded by 451 Research, an offering of S&P Global Market Intelligence.
One of the biggest deals for the month in terms of transaction value was Thoma Bravo LLC's $12.37 billion acquisition of email security provider Proofpoint Inc.
Proofpoint is one of the largest cybersecurity vendors, and in turn Thoma Bravo is one of the largest private equity firms and a leader in the consolidation of the sector. The firm has grown its portfolio aggressively. It held $78.11 billion in assets under management at the end of 2020, up 73.5% year over year, according to S&P Global Market Intelligence. The firm's information technology portfolio represents 74.6% of its holdings, highly concentrated in the cybersecurity space.
Cybersecurity has grown rapidly over the years at every layer of the economy, from consumer protections to enterprise and government security. The growth in demand has fueled a steady clip of M&A consolidation and higher share prices.
But investors have not been as kind to Proofpoint compared to other cybersecurity tickers. Shares of the vendor added just about 10% in value in the year prior to the transaction announcement compared to roughly 50% for the S&P 500 and a basket of information security stocks compiled by 451 Research. However, that did not stop the private equity firm from paying a 12x premium to Proofpoint's shares.
Thoma Bravo tapped The Goldman Sachs Group Inc. as its financial adviser on the transaction. The two are well acquainted, with Thoma Bravo reporting 83 transactions advised by Goldman Sachs LLC totaling $139.48 billion in disclosed transaction value, across all transaction types including M&A, IPO and private placements.
The companies did not disclose adviser fees for the record-breaking cybersecurity deal, but in a comparable deal, Thoma Bravo in April closed its $10.69 billion acquisition of real estate data analytics firm RealPage Inc. On that transaction, a Bank of America Corp. advisory unit charged the seller $39.8 million in fees and $3.0 million for a fairness opinion. Incidentally, Goldman Sachs advised Thoma Bravo on that deal as well.
Goldman Sachs advisers remain very busy in the information technology deal space, also consulting Microsoft Corp. on the top deal of the month by transaction value — the $19.79 billion acquisition of healthcare tech provider Nuance Communications Inc.
The transaction represents Microsoft's second-largest acquisition in its history, behind only the $29.04 billion acquisition of LinkedIn in 2016, according to 451 Research.
Adding Nuance expands on Microsoft's healthcare cloud business, Cloud for Healthcare, launched in 2020 as part of the company's industry-specific strategy for its Azure cloud platform.
Microsoft will pay $56 per share, or 13.5x trailing revenue, for Nuance. That is a sturdy premium to Nuance's $45.58 close before the deal announcement, to say nothing of Nuance's $19.33 one-year low. And considering Nuance has not grown its top-line revenue in any of the past four full years, the price stands out against others in that class.
Microsoft justified the purchase by pointing to the potential for healthcare technology demand, an opportunity that it claims doubled in size to a $500 billion addressable market with the Nuance transaction. The industry is undergoing a massive digital transformation, with petabytes of data added to electronic health records every week, and each of the major cloud providers have identified healthcare as a key opportunity for growth.