Back to work: Collaboration software M&A still active despite market pullback

Data Insight Dealspeak 7 September

Back to work: Collaboration software M&A still active despite market pullback

As more Americans return to the office and pandemic fears recede, the technology aimed at making remote and hybrid work possible has never been more in demand.

Capital raising and M&A involving North American work-collaboration software companies reached USD 19.2bn across 54 deals in the year to date, led by Vista Equity’s USD 16.6bn buyout of digital-workspace company Citrix Systems in January. That compares with 126 deals totaling USD 10.6bn in 2021 and 91 transactions worth USD 35.5bn in 2020, when Salesforce [NYSE:CRM] splashed USD 28bn on messaging firm Slack Technologies.

“We’ve never been as busy as we are right now,” says Will Andereck, a managing director at Union Square Advisors, of the current dealmaking environment. “Large strategics are looking to expand their value proposition and their end customers. That is leading to consolidation.”

Team up, labor less

Work-collaboration technology can broadly be split into two categories: unified communications and workflow. Unified-communications companies such as Zoom Video Communications [NASDAQ:ZM] and BlueJeans – acquired by Verizon Communications [NYSE:VZ] in 2020 – provide the software and infrastructure to enable engagement among teams, including video conferencing and messaging. Workflow software, provided by companies such as Asana [NYSE:ASAN], Smartsheet and Citrix’s Wrike, helps increase a team’s productivity with digital tools.

A convergence between unified communications, contact-center solutions, and workflow software is taking place, notes Andereck. Zoom offers a prime example: In February, it announced a contact-center product it had built, having failed in its bid for Five9 [NASDAQ:FIVN]. In May, it acquired Solvvy, a conversational AI chatbot company. 

Adoption of collaborative technologies accelerated during the pandemic, when companies were forced to deal with disparate work forces. That isn’t going away. “The remote-work concept is here to stay," says Deborah Smith, co-founder of The CenterCap Group.

Companies have had to upgrade their technology so employees can operate in a hybrid world of in-office and remote work. “Purpose-built software is coming for every industry,” adds Lindsey Wendler, a Dallas-based managing director with Dresner Partners.

Opportunities ahead

Cutting-edge technologies that improve efficiency of digital work will be attractive to acquirors, reckons Andereck. Examples include artificial intelligence and low-code/no-code software. The latter allows regular employees to design workflow tools without software developers. Figma and Formstack are leaders in that field, he notes. “Next-gen products with elements of AI, elements of no-code or low-code, will be front and center for large strategics,” says Andereck.

The downtrodden valuations of marquee work-collaboration software companies provide another opportunity. Shares of Asana, Atlassian [NASDAQ:TEAM] and Zoom are roughly 50% to 90% below their 52-week highs. Any company that suffers such a drop is a take-private target, says Andereck.

The slump in public-company valuations is affecting venture-backed firms too. “You cannot go public right now, at least not until the first quarter of 2023, so you have to figure out how you’re going to make it through the rest of the year,” says CenterCap’s Smith. Kumospace, a New York-based provider of ‘virtual office’ software, succeeded in raising USD 21m Series A this summer led by Lightspeed. “Fundraising is tough out there,” concurs Brett Martin, Kumospace’s cofounder. “No one I know is raising this summer unless they are killing it or they have no choice.”

Despite the weakened valuations, many large caps have the cash and borrowing capacity for acquisitions, notes Karl Cheng, TMT sector leader with EY-Parthenon. “There is still a pretty strong appetite to do deals.”

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