San Diego’s Software Equity Group Sees Software M&A Deals Ramping Up in 2011

2/25/11Follow @bvbigelow

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almost 20 percent last year in comparison to 2009, according to Ken Bender, who founded the Software Equity Group in 1992. The firm has represented both sides in M&A deals, but the firm works mostly for the software companies getting acquired.

The software business in general is recovering from the contractions that occurred during the Great Recession, and software company valuations are expected to increase by 10 to 15 percent in 2011. “It should be a good year if you’re a seller in certain categories,” Bender says.

Ken Bender

“What’s really changed is the mindset among buyers, which has resulted from the fact that 65 percent of software M&As were written off or written down within three years,” Bender says. These days, buyouts are far less likely to be a CEO-driven decision at public software companies. “Dozens and dozens of companies like IBM and Autodesk have shifted from CEO-driven, top-down acquisitions to a consensus-driven process that includes finance, production management, R&D, and all the other major departments. So deals are taking twice as long. It’s not that they’re not closing, but they are taking twice as long and requiring more due diligence.”

The longer process also means more deals are washing out, with a deal “mortality rate” that Bender estimates is two to three times higher than it was before the recession began in 2008.

“The buyers are extraordinarily focused on what plays to their core business,” Bender says. The priority for about 40 percent of the buyers is to enhance … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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