Software Firms Like Oracle, Salesforce and Adobe Are Well-Positioned for Deals

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Software M&A has been tepid in 2017, after a bonanza last year that saw companies such as LinkedIn Corp. and NetSuite Inc. come off the market. MoffettNathanson LLC calculates that the total value of transactions in the sector is down 59.1% from last year.

Things are due to pick up, though, MoffettNathanson analyst Adam Holt suggests in a recent report. Industry leaders such as Oracle Inc. (ORCL – Get Report) , Inc. (CRM – Get Report) , Adobe Systems Inc. (ADBE – Get Report) and Microsoft Corp. (MSFT – Get Report) should be ready to strike their next deals soon, the analyst wrote.

Valuations have stabilized for many companies, Holt added, making it easier for buyers and sellers to agree on price. Firms such as Vista Equity Partners LLC and Thoma Bravo LLC have become more aggressive technology buyers, and with sponsors getting more comfortable with tech, Holt suggested that a private firm could launch a buyout worth $10 billion or more. As tax cuts that could benefit cash-rich tech companies have languished, the analyst added, “would-be acquirers have given up waiting for Washington and are moving forward with their agendas.”

December marks the first anniversary of Microsoft’s $26.2 billion purchase of LinkedIn, and Holt suggested that the acquisitive software group could soon be ready for another transaction. A spokesperson did not respond to a query on Friday.

Salesforce, which also declined to comment, completed its last multi-billion dollar deal, the $2.85 billion purchase of Demandware Inc., in July 2016.

Adobe has “gone a long time without a midsized or large deal,” Holt wrote, and could use acquisitions to continue its pace of 20% revenue growth. The company did not respond to a query.

Oracle went on a spree last year and acquired cloud business software company NetSuite Inc. for $9.3 billion, utilities software developer Opower Inc. for $550 million, construction management software group Textura Corp. for $660 million and enterprise cloud company Ravello Systems Ltd. for $500 million.

The largest of the deals, NetSuite, closed in November. Holt suggested in the note that Larry Ellison’s company “will likely be back in the market soon.”

Ellison suggested last year that Oracle could be the first software company to reach $10 billion in cloud sales. The business generates about $6 billion in annualized sales now.

Acquisitions could push the software company closer to Ellison’s goal, but the Oracle chairman noted an impediment to continued M&A during the question and answer session during a September earnings call. “There’s no one left to buy,” he said.

Ellison spoke without the benefit of reading Holt’s report, which identifies a number of companies in attractive niches.

Potential digital marketing targets, for instance, include Sprinklr, Hubspot Inc. (HUBS – Get Report) and Hootsuite.

Privately held Sprinklr develops software for customer experience management, or CXP, that combines monitoring of social media networks for posts about clients, marketing, media management and other services. The company works with large tech groups such as SAP SA (SAP – Get Report) , IBM Corp. (IBM – Get Report) and Microsoft. Cisco Systems Inc. (CSCO – Get Report) executive chairman John Chambers joined Sprinklr’s board in September.

CEO and founder Ragy Thomas said that the direct marketing databases, call center solutions, web analytics, email, and social media tools have existed as isolated silos, though companies are now recognizing customer experience management an industry category. Adobe, for instance, announced a new suite of customer experience services in February.Thomas compares customer experience software to supply chain management. “In the ’80s and ’90s, we saw the evolution of the Supply Chain Management as a category, and the consolidation of a landscape previously littered with inventory management, order management and other independent solutions,’ he said. “Today, the same thing is happening with CXM. Consolidation will increase as companies are realizing that they need to solve the problem of siloed teams, disparate processes, and siloed data in order to improve the customer experience.”