As business applications and IT infrastructure move to the Cloud, the software market will become a “hotbed” of Mergers and Acquisitions activity in 2016.
According to 451 Research’s recently published Tech M&A Outlook 2016, acquirers will spend hundreds of billions of dollars on tech acquisitions in the coming year to adapt to a rapidly changing marketplace with notable hotspots in information security, Internet of Things and niches of the software sector.
“Two key trends will drive much the action in software M&A activity,” explains Brenon Daly, Research Director, 451 Research.
“The move of business applications and IT infrastructure to cloud-based models, the need for new data management capabilities to address the growing demand on IT resources anticipated from IoT.
“The digital transformation and analytics sectors will also help drive M&A activities during the year.”
M&A targets in 2016
Looking ahead, 451 Research’s forecast for the software market identified more than 90 companies as potential M&A targets in 2016 and another 13 private companies as potential IPOs.
Potential acquisitions for 2016 noted in the study include an IBM purchase of GitLab to own a key part of the development tool chain and BMC purchasing Graylog to move further into DevOps.
“The push into DevOps may also spark SolarWinds to purchase VictorOps or VMware to acquire HashiCorp,” Daly predicts.
“Furthermore, as DevOps creeps into traditional service management, ITSM providers such as ServiceNow may pick up startups such as Datadog or SaltStack to begin that transition.”
Given that API management platforms represent some of the core enabling technology needed for IoT platforms and hybrid IT integration, 451 Research expects 2016 to bring increased acquisition activity around API management vendors, which was an active area for M&A in 2015.
Attractive candidates noted in the study include 3scale, Akana, Apiary, Cloud Elements, Restlet, SmartBear and WSO2.
Daly believes potential acquirers include cloud service providers like Google or Rackspace, which are both looking to better position themselves against heavyweights AWS and IBM.
In addition, communication service providers looking to bring IoT platforms to the market, such as Verizon, and the technology vendors that serve those service providers, such as Huawei, are also strong potential acquirers.
Likely IPO candidates in this sector include AppDynamics, Mirantis and MuleSoft in the development, DevOps and IT operations space, along with several companies in the data platforms and analytics space, including Host Analytics, Sumo Logic and DataStax.
Security
Another M&A trend the market saw in 2015 is the rising importance of information security.
According to an annual survey of technology investment bankers that 451 Research conducted in December 2015, for the first time in five years, mobility was displaced by enterprise security as the number one area of expected M&A spending increases in the coming year.
Two out of 10 investment bankers expect ‘substantially more’ and another 52 percent anticipate ‘somewhat more’ acquisition spending this year in the security market.
