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Qatalyst cashes in on infotech M&A in September as valuations start to settle

Deal activity in the information technology sector remained brisk in September, but valuations dipped, signaling tech M&A may be settling somewhat after a historic run.

Deal volumes in September were up 35.3% to 249 information technology transactions compared to the same month of the prior year, and aggregate deal values year to date briefly topping $1 trillion before the third quarter was out. During the month, Intuit Inc. announced the third-largest handshake for the year with its $12.00 billion marketing automation play for The Rocket Science Group LLC, which does business as MailChimp.

But as the S&P 500 Information Technology Index gave up about 5.9% during the month, acquirers valued September technology targets at 5.4x their trailing-12-month revenue, on average. That figure was still roughly double what they were paying in prior years but a steep drop from the 7.2x average for the first three quarters of 2021, according to 451 Research, an offering of S&P Global Market Intelligence.

MailChimp managed to escape September's slight slump with a multiple around 14x to 15x. Intuit said it will add the company's suite of marketing automation tools to its financial software portfolio. Besides being the biggest sector acquisition of the month and the third largest of the year, it was also the largest acquisition ever of a private software vendor and Intuit's largest acquisition.

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The hefty valuation for MailChimp is consistent with other targets operating under the company's line of business, the customer relationship management sector, or CRM, and the marketing automation subsector of CRM. Those have been two of the most highly prized M&A arenas in 2021, with CRM commanding average trailing revenue multiples of 12.3x and marketing automation getting multiples of 13.3x on average for the first three quarters of 2021.

Tech-focused boutique advisory firm Qatalyst Partners LP is consulting MailChimp on the deal. Qatalyst is no stranger to Intuit. It advised the financial software company on its largest transaction prior to the MailChimp announcement, the $7.83 billion acquisition of Credit Karma Inc. in 2020.

Qatalyst's information security advisory list has been growing steadily year over year in recent years, and it has been landing more of the sector's biggest clients.

It did not advise on any deals in 2017 that posted a transaction value over $10 billion. In 2018, it landed a contract to advise CA Inc. in its $21.78 billion acquisition by Broadcom Inc., for which it collected $80.0 million in advisory fees and $5.0 million for a fairness opinion. In 2019, Qatalyst jumped on Alphabet Inc.'s $2.27 billion acquisition of Fitbit Inc. in an otherwise quiet year. Then in 2020 and 2021, the firm was showing up on many of the largest deals posted each month, including four deals valued over the $10 billion mark.

Qatalyst's highest-valued transaction was salesforce.com inc.'s $29.35 billion buyout bid of Slack Technologies Inc., which marked the second-largest transaction of 2020. Qatalyst's adviser fees were not disclosed for its work with Slack, but advisers from The Goldman Sachs Group Inc. also worked with Slack and posted $38.9 million in fees.

While Qatalyst is working with MailChimp, Morgan Stanley will advise Intuit.

Adviser fees have not been disclosed on the MailChimp deal. For comparison, Morgan Stanley will charge Medallia Inc. $45.0 million and $5.0 million for a fairness opinion to advise on Medallia's $7.07 billion buyout by private equity firm Thoma Bravo LP, the 10th largest information technology acquisition of 2021 to date. Morgan Stanley also previously charged Proofpoint Inc. $62.0 million in fees and $16.0 million for a fairness opinion on its $12.31 billion sale to Thoma Bravo, which stands as the second-largest sector deal of the year.