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Infotech deal volume, values surge in December 2020 as Goldman advisers cash in

The information technology deal market continued to gain steam in the last month of 2020, with a couple of 11-figure megamergers keeping M&A advisers busy.

December closed 2020 with 200 transactions in the info tech space, eclipsing the prior-year month by 16.3%. It also marked a month-over-month improvement from November 2020, which saw 189 deals. Tech deal volumes have been increasing steadily since the coronavirus pandemic hurt markets in the summer.

Much of infotech deal activity in 2020 has focused on semiconductor space, where rapid consolidation is driving some of the highest deal values in the industry. For example, Advanced Micro Devices Inc.'s acquisition of Xilinx Inc. still stands as the largest tech deal of the year at $36.79 billion. But in December, the remote-work space, which received a pop in activity as enterprises shifted to work-from-home models amid the pandemic, notched the second-largest transaction of 2020 with inc.'s planned $29.35 billion purchase of communications platform Slack Technologies Inc.

The acquisition is Salesforce's "latest, largest and riskiest yet," 451 Research analyst Scott Denne said in a note on the transaction. That is no small accounting, considering Salesforce has acquired 64 companies over the past decade. The company has been so acquisitive that its legacy software business only generated 13% of annualized revenue growth in the second quarter, with its add-on businesses generating the rest. Its prior largest acquisition was the $17.38 billion deal for Tableau Software Inc. in 2019.

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Goldman Sachs Group Inc. has been cleaning up on Salesforce's deal activity. The company is advising Slack on the transaction and offering a fairness opinion. While adviser fees were not disclosed for the pending combination, the company also advised the seller on the Tableau transaction; for that, it collected $82.0 million. Prior to that, it collected $46.3 million advising MuleSoft Inc. in 2018 when that company sold to Salesforce in Salesforce's third-largest transaction to date, valued at $6.81 billion.

Salesforce will tap a Bank of America Corp. unit for financial consultation on the transaction with Slack. In prior deals, it worked with Bank of America through Merrill Lynch Pierce Fenner & Smith Inc. Asset Management Arm The software giant worked with that adviser several times, including on the Tableau and MuleSoft deals.

While those deals have generated Salesforce's top-line growth, its bottom line is increasingly fueled by minority investments. Its venture investments prevented the company from posting its first profit loss in 2019, and gains in its strategic investments have accounted for over one-third of its net income in nine of the past 15 quarters, 451 Research notes. Its financial performance is so tied to its acquisitions that Denne at 451 Research says the company is more a software investor than software company at this point.

The deal is a pricey one for Salesforce, driven in part by massive investment interest in the information technology space through 2020. Over the year prior to Jan. 7, Slack shares grew by 76.8%, with a hefty bump in at the end of the year as reports of a potential sale to Salesforce surfaced. But with infotech target-company valuations rising, buyer valuations have also risen, providing capital to engage such lofty deals. Salesforce shares swelled 24.6% during the aforementioned one-year period.

The jump in valuations was also apparent in December 2020's second-largest transaction — the Thoma Bravo LLC's $10.47 billion bid to take real estate data service RealPage Inc. private. Goldman Sachs and Bank of America will again cash in on that hefty combination as they advise the buyer and seller, respectively.

Thoma Bravo has favored Goldman Sachs advisers as the private equity firm consolidates its growing corner of the infotech industry. The company has tapped the firm 70 times for M&A and financial transactions, according to S&P Capital IQ.

451 Research is part of S&P Global Market Intelligence.