Research from global investment bank GCA Altium reveals that the market capitalisation of the world’s listed software sector now stands at USD 7.5tr – up 59 per cent from the USD 4.7tr seen at the end of 2019.
This growth has been driven by businesses in the SaaS space, with more than USD 1tr being added to the value of firms like Zoom, Adobe and Splunk over the last 12 months – doubling their total market values. Behind this, platform-based companies like Oracle, Microsoft, IBM and Cisco have seen their values rise by USD 494bn, while enterprise resource planning (ERP) and business technology firms including Slack, Salesforce and Shopify have added USD 241bn.
In total, four software sub-sectors more than doubled their total value over the course of 2020. Infrastructure tech, which includes businesses such as Citrix and Fastly, saw a 212 per cent rise in value from USD 98bn in Q4 2019 to USD 208bn in Q4 2020, followed by business intelligence and analytics (168 per cent) and sales and marketing (152 per cent).
This rapid growth has also driven increased M&A activity across both the public and private markets in the software space over the course of 2020. In total, 1,705 M&A transactions were completed in the global software space, worth a combined USD 165bn. This represents a 17 per cent rise on the 1,453 deals seen in 2019, and a 50 per cent increase in deal value compared to 2019’s figure of USD 110bn.
While investor appetite was affected by the Covid-19 pandemic, with just USD 5bn of transactions completed in Q2 2020, the sector rebounded strongly in the back half of the year, with 532 deals finalised in Q4 – the highest seen since GCA Altium’s records began in 2015.
Key transactions completed over the course of 2020 include the December announcements of Salesforce’s USD 28.4bn acquisition of Slack and Thoma Bravo’s USD 10.2bn buy of RealPage, as well as Intercontinental Exchange’s USD 11bn purchase of Ellie Mae in September and the USD 985m sale of Finicity to Mastercard in June.
Adrian Reed, Managing Director at GCA Altium, said: “The digital transformation seen across multiple industries over the course of 2020 has been pivotal in driving the value of the listed global software sector. In the post-Covid environment, there has been an enormous shift towards machine learning, cloud, AI and digital payments, improving the online customer journey and revolutionising business operations through remote working to support productivity.
“Given the growing ubiquity of digital technologies, and the strong recurring revenues seen by software companies, it is unsurprising that investors have become increasingly interested in the sector over the last 12 months. Despite the understandable caution caused by the pandemic, we have seen record levels of activity, which we expect to continue into 2021.”