10 notable SaaS acquisitions and market trends

The significant growth of tech companies has reshaped the IT sector and led to several major mergers and acquisitions in the SaaS industry. Notably, in 2023, SaaS M&A deal volume surged by over 20% when compared to the final quarter of 2022. 

In this article, we’ll explore the world of SaaS mergers and acquisitions, highlighting key acquisitions, defining essential factors driving these transactions, and exploring the latest trends shaping the SaaS landscape in 2023.

Highlights

• Top 5 SaaS acquisitions in 2022-2023 include OpenText and Micro Focus, IBM and Apptio, Silver Lake, CPPIC, and Qualtrics, Kaseya and Datto, and Oracle and Cerner.
• Other notable SaaS deals include Google and Fitbit, PayPal and Honey, Facebook and CTRL-labs, GitHub and Semmle, and McDonald’s and Apprente and Dynamic Yield.
• Critical factors influencing the outcomes of M&A for SaaS transactions include growth metrics, customer acquisition costs, churn rates, market competition, intellectual property protection, and brand reputation.
• SaaS market trends in 2023 include thriving M&A activity with a focus on SaaS companies, significant private equity involvement, a 21% QOQ increase in deals, and a shift towards vertically-focused transactions.

Top 5 SaaS acquisitions 2022-2023

Let’s explore the most recent SaaS acquisitions that are making headlines in the tech world.

1. OpenText and Micro Focus 

Valuation: $5.8 billion

Strategic goals: OpenText aims to create a software powerhouse with a broad portfolio of information management and IT security products

OpenText has successfully completed its acquisition of Micro Focus, a fellow software and cybersecurity specialist, in a monumental deal valued at $5.8 billion. This strategic move has given rise to one of the world’s largest information management and security conglomerates.

However, as part of the integration process, OpenText anticipates an approximate 8% reduction in its workforce, resulting in significant cost synergies estimated at $400 million. With this merger, the combined company will boast a workforce of approximately 25,000 professionals, incorporating Micro Focus’ 11,000 employees and OpenText’s existing 14,000 global employees.

2. IBM and Apptio

Valuation: $4.6 billion

Strategic goals: IBM aims to get a technology management platform they can use to optimize and automate decisions across their IT landscapes

IBM is making a strategic move to acquire Apptio, a prominent hybrid cloud and FinOps software provider, in a $4.6 billion all-cash deal. Apptio’s SaaS applications, with a customer base that includes over half of the Fortune 100 companies, will be integrated with IBM’s Watson AI platform and automation software.

This acquisition aims to bolster IBM’s offerings in hybrid cloud management, IT optimization, and financial management. It’s expected to generate significant synergies, particularly in automation, Red Hat integration, AI portfolio expansion, and partnerships with systems integrators.

The acquisition is set to close in the second half of 2023, providing IBM with valuable IT spending data and enhancing its IT automation capabilities.

3. Silver Lake, CPPIC and Qualtrics 

Valuation: $12.5 billion

Strategic goals: The companies aim to scale the XM software platform, drive technology innovation, and enhance customer value

On June 28, 2023, Qualtrics, a pioneer in experience management (XM) software sector, completed its acquisition by Silver Lake, a global private equity firm, in collaboration with the Canada Pension Plan Investment Board (CPP Investments).

This transaction marks Qualtrics’ transition into an independent, privately held enterprise, valued at approximately $12.5 billion. Under the agreement, Qualtrics shareholders received $18.15 per share in cash.

This acquisition positions Qualtrics to continue leading in the XM category, with a focus on innovation and growth, supported by Silver Lake’s strategic expertise.

4. Kaseya and Datto

Valuation:  $6.2 billion

Strategic goals: Kaseya aims to strengthen its position as a Managed Service Provider software vendor and enhance its offerings to meet the changing needs of SMBs in a post-pandemic environment.

In April 2022, Kaseya, a leading provider of IT and security management solutions, announced its acquisition of Datto for a substantial $6.2 billion. With this strategic move, Kaseya aimed to fortify its market position and expand its portfolio of solutions, making it the largest managed service provider (MSP)-focused software vendor globally, with over 3,700 employees.

This acquisition also enhanced Kaseya’s cybersecurity capabilities, addressing the gaps in its existing offerings and ensuring robust protection against ransomware attacks.

Datto’s shareholders also benefited from this acquisition, receiving a payout equivalent to 52% of the company’s stock price.

5. Oracle and Cerner

Valuation: $28 billion

Strategic goals: Oracle aims to expand its presence in the healthcare industry, leveraging Cerner’s expertise and technology

In June 2022, Oracle completed its acquisition of health IT company Cerner in a historic deal valued at $28.3 billion. This marks Oracle’s entry into the healthcare sector and positions Cerner as its “anchor asset” for expansion in the healthcare industry.

With the aim of transforming healthcare delivery, the acquisition will leverage Oracle’s cloud capabilities to provide new-generation healthcare information systems, improving treatment decisions, and patient outcomes, and reducing administrative workloads.
The move reflects the growing interest of big tech companies in healthcare IT, with the industry undergoing significant changes driven by major acquisitions and investments by tech giants like Oracle.

5 noteworthy SaaS deals that shaped today’s landscape

Discover the five SaaS transactions that have had an impact on the current technological landscape.

1. Google and Fitbit

Valuation: $2.1 billion

Strategic goals: Google aims to strengthen its position in the wearables market and address challenges with its Wear OS

One of the biggest M&A headlines in 2019 was Google’s plan to acquire Fitbit, at a value of approximately $2.1 billion.

The acquisition aimed to help Google become more competitive in the wearable tech sphere, an area in which Apple had a strong lead. “We plan to work closely with Fitbit to combine the best of our respective smartwatch and fitness tracker platforms,” says Rick Osterloh, senior vice president of devices and services at Google.
Fitbit saw the acquisition as a benefit to its own mission, too. “Google is an ideal partner to advance our mission,” says James Park, cofounder and CEO of Fitbit. “With Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and make health even more accessible to everyone.”

2. PayPal and Honey

Valuation: $4 billion

Strategic goals: PayPal aims to expand its offerings for its 275 million active consumer accounts by leveraging Honey’s tools for savings and discounts

In November 2019, PayPal announced its plan to acquire Honey Science Corporation for about $4 billion. Founded in 2012, Honey focuses on helping consumers find ways to save money online with mobile shopping assistants, price trackers, and discount-seeking tools.

“Honey is amongst the most transformative strategic acquisitions in PayPal’s history,” says Dan Schulman, president and CEO of PayPal. “It provides a broad portfolio of services to simplify the consumer shopping experience, while at the same time making it more affordable and rewarding.”
The deal also helps PayPal advance its mission to function as a standalone, platform-agnostic fintech tool since its spinoff from eBay in 2015, Matthew Cochrane at The Motley Fool writes. “Honey paves the way for PayPal to offer more value to its account holders and differentiate itself from competitors.”

3. Facebook and CTRL-labs

Valuation: $1 billion

Strategic goals: Facebook aims to explore more natural and intuitive ways of interacting with devices and technology, particularly in augmented and virtual reality

After being outbid by Google in its attempt to acquire Fitbit, Facebook turned its focus to another deal: The acquisition of CTRL-labs, a New York startup that focuses on interfaces between computers and the human brain.

CTRL-labs will join Facebook Reality Labs to focus on “more natural, intuitive ways to interact with devices and technology,” says Andrew Bosworth, Facebook’s vice president of AR/VR.

Bosworth notes that intuitive technologies, augmented reality (AR) and virtual reality (VR) “can change the way we connect.” Facebook Reality Labs and CTRL-labs plan to continue joint work on the latter’s wristband, which allows users to control an on-screen pointer with concentration, but without physical movement.

4. GitHub and Semmle

Valuation: was not publicly disclosed

Strategic goals: GitHub seeks to provide tools and infrastructure for secure enterprise software development, which aligns with Semmle’s capabilities in identifying vulnerabilities

As one of the largest open-source coding communities, Microsoft-owned GitHub and its users deal with the realities of cybersecurity every day. These challenges lie behind GitHub’s September 2019 announcement of a deal with Semmle, a semantic code analysis engine.

Semmle’s existing client base includes security teams at Uber, NASA, Google, and Microsoft. The software allows users to find vulnerabilities in codebases more quickly, which can then be addressed by developers or shared with open-source communities.

By incorporating Semmle’s tools into GitHub’s work, both companies seek to further their missions to support the creation of code that works.

5. McDonald’s and Apprente and Dynamic Yield

Valuation: $1 billion

Strategic goals: McDonald’s intends to use AI to enhance its ordering processes, improve customer satisfaction, and stay competitive in the fast-food industry

SaaS acquisitions don’t always involve the marriage of two technology companies. Established retailers, restaurants, and other businesses have also begun investing heavily in the tech space in order to transform their own work to meet the demands of today’s world. Such is the case with McDonald’s, which announced software M&A deals in 2019 with two AI companies: Apprente and Dynamic Yield.

In March, McDonald’s said it would acquire Dynamic Yield, a tech company focused on personalization and design logic technology. One of McDonald’s goals is to use Dynamic Yield’s tech to personalize the ordering process in its drive-thrus, the company said in a press release.

In September, McDonald’s announced its acquisition of Apprente, which specializes in building artificial intelligence that can parse and respond naturally to human speech. Instead of generating a transcript and then parsing it, Apprente attempts to translate speech sounds directly to meaning that a computer can use.

Critical factors influencing the outcomes of the SaaS M&A transactions

Making a return on investment is the primary concern of financial buyers, whether it’s private equity firms or individual investors. So, to convince the buyer that their SaaS company is an attractive investment and the price and terms are fair, sellers need to review the data points below.

1. Growth 

• Annual recurring revenue. Annual recurring income is the income from subscriptions for a yearly period. Ideally, this figure should increase. Stagnation, in turn, is a red flag for investors.
• Monthly recurring revenue. Monthly recurring revenue should increase yearly, like ARR. However, if a SaaS business has fluctuating MRR, this indicates problems with churn, dependence on marketing campaigns, and seasonality.
• Earnings before interest, taxes, depreciation, and amortization. EBITDA describes a SaaS company’s profitability without considering financing and capital expenses. In other words, it demonstrates the profitable growth potential of the SaaS business. 

2. Opportunity

• Churn. There is no industry standard for churn for SaaS businesses as such. But for example, some online resources claim an average 3-8% monthly churn rate. If it exceeds 10%, buyers may question the SaaS company.
• Customer acquisition cost. The less a startup spends on customer acquisition, the better the company’s marketing works. Consequently, CAC shows the buyer opportunities for developing and growing this business without much effort.
• Customer lifetime value. The CLV of a sustainable business should be three times the customer acquisition cost. Along with this, buyers look at CAC and churn in their valuation of a startup.

3. Market

• Number and size of competitors. Knowing the size of a startup’s competition allows buyers to infer potential profits once the business is acquired. A saturated market is not a problem if it is fast growing. But the lack of competition may indicate that the company’s activities could be more worthwhile.
• Past acquisition data. Startups must know how much to sell themselves for. Thus, investment organizations will likely refrain from deceiving the acquired companies by putting forward unfavorable conditions. 

4. Persistence

• Intellectual property. Intellectual property is the lifeblood of SaaS businesses, so an investor must be sure that it is well protected. For example, if the IP is open-source, investors expect an explanation of why this will not affect the startup’s business model.
• Tickets. Since buyers usually look at customer support tickets, ensure you know what secrets they keep. Note that tickets may indicate a misunderstanding of your target market or a weak team of engineers.

5. Positioning

• Brand. To measure the effectiveness of a brand, SaaS companies need aggregated data on media coverage, website traffic, and customer interactions with their marketing campaigns in a single report.
• Reviews. The probability of acquisition increases if the company boasts a good customer experience, which genuine reviews should evidence.
• Net promoter score. This indicator shows how willing customers are to recommend a product or service to others.

SaaS market trends 2023

According to the SaaS M&A report compiled by Software Equity Group, 2023 brings several notable trends in the SaaS market:

• SaaS M&A activity continues to thrive, with 66% of all software M&A transactions in 1Q23 focused on SaaS companies.
• Private equity plays a significant role, with PE-driven deals representing 61.1% of all SaaS M&A transactions.
• Despite economic uncertainties and market fluctuations, SaaS M&A deals increased by 21% QOQ, showcasing the enduring strength and attractiveness of the SaaS sector in 2023.
• Vertically-focused transactions are on the rise, accounting for nearly half of all SaaS M&A deals in the first quarter, marking a shift from the traditional horizontal focus.