Software and technology M&A update: H1 2023

Decoding the trends of software and technology

The following report developed by Baker Tilly Capital, LLC provides an update on the software and technology (S&T) mergers and acquisitions (M&A) market in the first half of 2023. The report includes an overview of the market performance, M&A activity, transactions by segment and buyer and U.S. M&A activity.

Here are some key takeaways from the report:

• Digital transformation has shifted from a nice-to-have to a mission-critical need for businesses of all sizes and industries. COVID-19 acted as a catalyst, emphasizing the importance of early digital adoption for resilience in changing economic landscapes
• S&T companies are positioned for continued growth, innovation and performance, outpacing the broader market
• Investors are drawn to the unique business model of SaaS companies due to their ability to generate strong, predictable recurring revenue and scalability with higher margins. Increased cloud adoption and technological innovation contribute to the sector's growth, appealing to investors amidst market uncertainty and inflation
• Investors now value efficient growth over growth at all costs, leading SaaS businesses to focus on driving margins and generating cash flow. Companies are strategically cutting operational costs to enhance operational efficiencies and promote sustainable growth
• U.S. S&T M&A activity slowed in H1 2023, with a reported 464 deals totaling $45.0B
• Despite recent decreases, M&A activity in H1 2023 aligns with pre-COVID averages, indicating stabilization after peaks driven by strong public market valuations, low interest rates and increased remote operations
• Application software is the primary focus of buyers in H1 2023, with financial-backed strategic acquirers leading (61.3% of reported transactions). Economic uncertainty and high-interest rates are some of the many drivers leading financial-backed strategists to invest in smaller companies and strategic technology assets
• Despite stabilization, M&A participants remain cautious, and the market anticipates signs of improved transactional activity in the second half of 2023