3 triggers that stimulated me last week to look deeper into M&A in AEC. First, various friends who work at AEC software firms recently debated about M&A going into 2023. Second, Autodesk received another open hate-letter about their (M&A) practices. Third, we’re heading deeper into the 2022 crash – and thou shall be greedy when others are fearful.
So I wondered “wut M&A doin” in AEC.
I checked out 9 well-known (hybrid) AEC software firms and their M&A track record – including the likes of Trimble, Autodesk, but also game engine devs Unity and Epic to check for alternative strategies.
I went as far back as 2005. My colleague Fabio 👏👏👏 did a helluva job researching and harmonizing the numbers (thanks Fabio !).
331 M&As were done by these players in the last 18 years.
The trend is up – M&A activity almost 2x’ed over this time frame.
2009 was a crash-related down. We already see the same in 2022 – while 2021 was THE record year with 31 deals, 2022 YTD is at half of 2018 (15).
What surprised me was the makeup of those deals. First, by acquirer, and second, by acquiree.
Autodesk might get all the attention (and hate) for their product and M&A strategies.
But it’s hybrid hardware+software players such as Trimble, Hexagon and Faro who dominate M&A. They make up more than 50% of all M&As.
Autodesk is rightly in the discussion, though, making up 20% of all acquisitions (67).
It’s fascinating to observe outside-in that Trimble v. Autodesk seem to follow completely different strategies. While Trimble goes after targets that enable an “on-site” strategy, Autodesk seems more enamored with a “3D-enabled” roadmap.
Hard to say by the numbers how these acquisitions drive a product strategy. Although the numbers give an idea why 3D-users are fearful in their open hate-letters to Autodesk…
But it’s not just behemoths Trimble and Autodesk who we should look at. Over time, M&A priorities clearly shifted. 10 years ago, acquirees used to be much more in hardware and GIS/mapping – those two sectors got hammered.
On the other hand, acquirers today love (1) 3D, gaming/assets, field mgmt and (2) a much more diverse range of (specialty) applications than they used to. 61% of all M&A’s in the last 8 years happened in these spaces.
A special note I found intriguing was that – while 2022 M&A dropped hard by 50% – Hexagon acts contrarian and has their most active M&A year since 2016 (5 deals already).
Yet 2022 deals are down. Multiples (not analyzed, but anecdotally) have come crashing hard, by factor 5-10x or more in some crazy places.
I hypothesize that while seasoned acquirers such as Trimble, Autodesk and Hexagon (each bought more than 60 firms over the last 18 years) are on the prowl for great deals – many shareholders of fantastic software firms are not particularly interested in entertaining shitty deals right now or next year.
So what gets done in 2022 and 2023 ? I wonder if it’s mostly firesales/distressed deals. Or in other words – dogs ?
The numbers I found, plus common sense, don’t suggest that shareholders in great firms in the sought-after categories such as 3D or field management with strong cash positions are particularly keen to sell in the next year.
In my conclusion, acquirers should consider a dual strategy: (1) acquire great products/tech in distressed situations for affordable money (even if it means the multiples look off) and (2) find ways to engage meaningfully with good businesses which still grow in the ballpark of 1.5x-2x YoY in current environment and you expect to plateau on their own in a year or two from now, and then be in pole position to strike a deal at fair multiples in 2023 or 2024.
