Software M&A activity shows signs of stabilisation after post-pandemic turbulence - new data

New data shows the downward trend in software merger and acquisition (M&A) activity witnessed throughout 2023 continued into the first quarter of 2024, but with the number of announcements dropping only by 1, the ship may finally be steadying.

According to the ESsense – Software M&A Insights analysis, the new year kicked off with 173 announcements, according to new data compiled by Escode, the global leader in software escrow and subsidiary of global cyber security company NCC Group, in partnership with Experian.

The pandemic M&A boom

Analysis showed 2020 was the most active year for software M&A activity, with 1,021 M&A announcements made.

This correlated with an increased focus on tech to help overcome challenges posed by the pandemic, as the world adapted to working from home en-masse.

A drop in M&A confidence

Despite high levels of activity in 2020, the first year of the pandemic, analysis highlighted the decline in software M&A activity in recent years amid tech sector turbulence. Overall, M&A activity plummeted in 2023 by 20.8% compared to the pandemic peak.

Comparing the first half of 2022 and the first half of 2023, overall activity dropped by 21%, while acquisition activity decreased by 32.3% over the same period.

The general downward trend for software M&A activity in recent years may be reflective of flux in this sector and a subsequent drop in investor confidence.

The collapse of Silicon Valley Bank and a record number of cyber attacks are just some of the factors that may have prompted unease for investors in this sector last year.

Regional insights

London recorded the most deals in 2023 with 288, followed by South East England (94) and the North West (57), while deal numbers were lowest in the Republic of Ireland and North East England (11 respectively).

Need for enhanced risk management

The Bank of England has highlighted the need for enhanced risk management for financial businesses in 2024. However, it is not only financial businesses that will benefit from tightened safeguarding around their intellectual property.

Escrow agreements are essential in reducing the risks associated with software M&A. As a simple tri-party agreement between the software customer, software supplier and an independent escrow provider, it is specifically designed to mitigate risk and protect the interests of all parties involved.

Adrian Ah-Chin-Kow, Global Commercial Director at Escode, NCC Group said: “We see market confidence once again returning. The widespread adoption of escrow agreements will support investment in the software sector, as such agreements put safeguards in place for intellectual property, assist with business continuity planning and ensure compliance with the understandably high levels of due diligence requirements involved in M&A activity.”

The ESsense – Software M&A Insights report marks the first of a quarterly series of software M&A analysis, which will monitor future activity, value, and trends in this sector.