Tech M&A Is Dead… Unless You Have Cash

Here Comes Usage! Adopting & Optimizing Consumption Business Models

Join MGI for a webinar discussing the evolution of usage and consumption billing – who delivers it today, what headwinds and tailwinds are shaping the market, and which emerging capabilities will become table stakes in the near future. This webinar will answer questions like:

• What is usage billing and who can provide it?
• What is driving interest in consumption pricing models?
• What are the challenges of implementing usage billing?
• What is the difference between a simple usage billing capability vs. a complex one?
• How can users plan for effective and efficient adoption of usage billing?

Register for the webinar here. We’ll see you on Thursday, August 17 at 8am PT / 11am ET / 5pm CET.

Tech M&A Is Dead… Unless You Have Cash

With high interest rates, expectations for a rising tide of tech M&A transactions have tempered. Most buyers look for some leverage in acquisitions, but at 13-14% interest, borrowing costs are too high to make acquisitions profitable. Deals that get to a finish line in this environment must be compelling, non-dilutive, and rich with cash-generating opportunities. Three recent transactions caught our eye:

• On July 26, Haveli Investments, in partnership with General Atlantic, announced the acquisition of Certinia, formerly FinancialForce, from private equity and venture capital firms Advent International and Technology Crossover Ventures for reportedly ~$1 billion (undisclosed by the company).
  • Certinia is a leading provider of automation solutions for services-oriented businesses.
  • Its products address the Service-as-a-Business model (“SaaB” highlighted in our research earlier in 2022 and 2023).
  • Certinia is targeting the needs of the mid-to-large-scale services organizations in terms of professional services automation as well as financial management, customer success, and services CPQ.
  • While General Atlantic is a long-established private equity investor, Haveli is a relatively new fund founded by alums of Vista Equity Partners. The transaction is expected to close later this month.
    • Get the Certinia 360 Rating™ here.
    • Get the Certinia Use Case Note™ here.
    • Read more about Service-as-a-Business here.
• On July 25, French aerospace and defense firm Thales announced that it is acquiring application and data security company Imperva from Thoma Bravo private equity for $3.6 billion.
  • Previously, Thoma Bravo took Imperva private in 2019 for around $2.1 billion. Founded in Israel, Imperva was part of a large, $26 billion security portfolio at Thoma Bravo.
  • Now, Thales is trying to take its cybersecurity business to the next level, while Thoma Bravo will have to focus on rationalizing its diverse set of cybersecurity properties.
• On July 12, Rev.io announced the acquisition of Tigerpaw, a software company with a near 40-year-old track record in delivering professional services and business automation software for small and midsize technology providers.
  • The Tigerpaw solution focuses on the Managed Services Provider (MSP) universe – an area that Rev.io is already targeting with its monetization solution.
  • This acquisition has the potential to be accretive for Rev.io, expanding its reach within the managed services space.
  • Tigerpaw’s technology provides MSPs with account management, sales automation, project management, reporting, invoicing, field technical support, and inventory tracking, among other capabilities.
  • With Rev.io’s billing and monetization capabilities, the combined package has many of the features of a SaaB solution.
  • Rev.io is backed by private equity firm Primus Capital.
    • Get the Rev.io 360 Rating™ here.
    • Get the Rev.io Use Case Note™ here.

The intrigue | While these are not the only tech M&A transactions in recent weeks, it is notable that all three involve large private equity firms. In recent years, private equity firms have become almost a separate class of ownership – especially in the software industry, with vast portfolios employing hundreds of thousands of professionals globally and generating tens of billions in revenues.

• Some of the larger PE firms retained a significant amount of cash that they are now looking to deploy by targeting quality firms with declining valuation multiples.
• Many are also looking for creative exits that can create liquidity even in a more challenging transaction environment with higher interest rates.
• As rates eventually ease, the pace of M&A and multiples are likely to recover.

Why you should care | Two of the transactions noted (Rev.io/Tigerpaw and Haveli/Certinia), target the services spaces – specifically, Professional Services Automation (PSA) and SaaB – an area that we forecast will grow rapidly over the next 3-4 years.

De-clouding the Future?

An upcoming report from MGI Research will analyze the “de-clouding” trend – i.e., a potential mass shift away from the cloud and back onto data centers and on-prem systems. The driving force behind this movement is the increasing cost and dependency on major cloud providers such as AWS, Salesforce, and Microsoft Azure, which have become significant expenditures for organizations attempting to focus on slashing costs and boosting profitability.

• Performance bugs, security concerns, and more complex needs are all sensible reasons for migrating off the cloud. However, the most likely culprit for the trend is price.
• However, roadblocks like decreasing availability of legacy systems and the sunk cost fallacy dissuade many potential de-clouders from taking the leap.
• De-clouding is not yet a widespread phenomenon. Its emergence as a potential budget-trimming solution should serve as a warning to tech vendors: software costs are either too high, mismanaged by customers, or both.

Stay tuned for the full report on de-clouding – it will be published later this month.