You want to sell your software company? Then it is good to know what the acquisition market in the field of software companies looks like. Because the software sector is a growth market, there will only be more mergers and acquisitions in the coming years to meet demand. Staff shortages may also lead to so-called "capacity takeovers.
The number of mergers and acquisitions in the field of businesses that develop, produce and publish software peaked in 2021, but went well beyond this in 2022. SMEs with scalable as-a-service revenue models are increasingly in the sights of private equity parties or strategic buyers. Chain integration through acquisitions is also currently common. Due to these developments, further consolidation is expected in the coming years.
There are many ways to value a business. A common method of expressing the value of a business is "a factor x gross annual profit." This factor is also called multiple and another designation for gross annual profit is EBITDA (Earnings Before Interest Taxes Depreciation and Amortization).
In IT services and software development, the sector to which software companies belong, an indicative EBITDA multiple range of 5.9 to 7.2 is currently used, according to the Brookz Takeover Barometer. The average EBITDA multiple across all SME sectors is 4.90.
The valuation of a business is often the starting point for negotiations between buyer and seller. The outcome of these negotiations is the final sales price. So valuation and price are two different quantities. Besides valuation, the price is also determined by possible scarcity in the market, bargaining power of the parties, the strategic value of the business for the buyer and possible synergy effects for the buyer (cost savings, purchasing advantages).
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Want to buy a business or sell a business in the IT Services & Software Development sector? With this Brookz Sector Monitor, we want to present buyers and sellers with facts, figures and an outlook that provide insight into the number of transactions, the value development of businesses and the latest trends and developments in the IT Services & Software Development sector. Because in any buying or selling process, thorough preparation provides peace of mind, overview and structure.
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Software is a growth sector, driven by cloud computing and digitalization of the economy. Especially software and security services are growing strongly. Digital transformation in almost all Dutch industries is increasing demand for, and supply of, IT services. Competition is increasing as the number of providers grows faster than demand.
In figures, the number of ICT businesses in 2024 looked as follows(CBS):
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A number of trends and developments will inevitably cause changes over the next few years, but also provide the software sector with many growth and acquisition opportunities:
Collecting, analyzing and understanding data will become more important in the coming years. This will lead to a huge amount of data and with it the demand for consulting and solutions. Digitization is creating a huge amount of data. This data enables businesses to better understand the customer. This creates new business models.
With the rise of the cloud, software delivery has changed. More and more mid-sized organizations are outsourcing IT because of the high rate of innovation. IT is delivered as a service (IT as a Service) from a data center and requires fewer on-site personnel to maintain the IT landscape. Expertise and clout are hired for this purpose. Traditional professional services, such as on-site deployment of consultants, are losing ground.
Finding suitable personnel has always been a challenge. There is a shortage of software developers, computer language specialists and data analysts in particular, according to ABN Amro. The shortage of personnel, along with other production obstacles, is now beginning to take a toll on the industry's revenue growth.
Within the IT software category there are also new businesses that do not fit the traditional definition of this industry. Examples include hosting companies, Internet companies or sharing platforms that are growing rapidly based on new business models. Little data is yet available from this category of businesses because they do not fall into the existing statistical classification. But their economic impact is growing: they generate new jobs and often grow internationally.
