Arma Partners maintains strong activity levels, expects record year despite downturn
In 2022, the combination of rising interest rates, soaring inflation, recessionary fears and Russia’s invasion of Ukraine impacted valuations, constrained investors’ risk appetite and led to a slowdown in M&A activity globally. However, the year has offered indicators that the Digital Economy is weathering the global economic downturn and, despite a challenging global macroeconomic outlook, Arma has remained extremely active, working on a diverse range of large and transformational M&A and capital-raising transactions. In the past 12 months, Arma advised on 22 M&A deals in total, valued at $33bn+, surpassing the firm’s previous record annual deal value by c.50%, and raised over $630m for high-growth clients across 8 growth capital transactions. More than ever, technology companies need clear, unbiased advice and we are grateful for the continuing trust of our clients as we head into 2023 and anticipate, yet again, record revenue levels for our financial year to March 31st.
2022 was a challenging year for software companies on public markets, and especially high-growth, lower-margin businesses, which saw their valuations fall more significantly. However, the impact on software valuations in private markets was more subdued, with the highest-quality businesses able to maintain valuations broadly equivalent to those achieved before the recent correction. This was reflected in the performance of Arma’s Software practice, with the team advising on enterprise software transactions worth $23bn in total. This included the sale of Forterro, a leading pan-European provider of ERP software, by Battery Ventures to Partners Group for $1.2bn; the sale of EQT’s and TA Associates’ significant minority stake in IFS and WorkWave to Hg at a $10bn valuation; and Hg’s substantial investment in The Access Group at an $11bn valuation.
Similarly, 2022 saw continued activity in public cloud services, with keen buyer interest from global system integrators, PE-backed cloud consolidators and PE capital more broadly. This is likely to continue as a key theme into 2023, with public and hybrid cloud acting as a key enabler of digital transformation. Resilience and continued growth were evident in the wholesale networking market, driving M&A interest, with Arma advising on transactions such as Ardian’s investment in Grupo Aire, a leading independent provider of converged next generation communications services, in Spain, and the sale of Virtual1, a software-defined, high bandwidth, network services provider, to TalkTalk Group in the UK. We expect consolidation to remain a key theme in the webhosting sector, with Arma having advised on the sale of online presence solutions provider Dogado to group.ONE at the end of this year.
Meanwhile, in FinTech, despite a slowdown in M&A and financing activity in 2022, Arma advised on a range of deals where financial investors and strategic players showed sustained appetite to acquire and invest in market leaders with excellent KPIs. This included the sale of insurance software provider RGI by Corsair to CVC; the Series D capital-raise by Xempus, a pensions and life insurance SaaS platform, led by Goldman Sachs Asset Management; and intelligent automation software provider Kofax’s acquisition of AIM-listed Tungsten Corporation. In the future, we expect increased activity from PE-backed strategic players eager to pursue M&A add-ons to drive increased scale, unlock revenue and cost synergies and accelerate value creation, as evidenced earlier this year when end-to-end mission-critical automation software provider Aryza, a portfolio company of Pollen Street Capital, acquired credit lifecycle platform Collenda – another transaction on which Arma advised.
Our Media, Internet, Data & Information (MIDI) team has been busy this year too, reflecting elevated levels of activity across the sector. In particular, a resurgence of deal-making in data and information was underscored by our client Providence Equity Partners’ acquisition of leading global automotive information company A2Mac1 jointly with Five Arrows Principal Investments. In marketplaces, we successfully advised on the acquisition by Summa Equity of leading European B2B auctions group TBAuctions jointly with Castik Capital, as well as the $130m growth financing of vacation rental platform Holidu led by 83 North. Our ability to secure capital investment for high-growth European champions was also evidenced by the $230m investment by Sofina in food delivery leader Rohlik.
Across the board, it is evident that the global downturn has acted as an important catalyst for transaction activity within the Digital Economy to refocus both public and private investors on proven, resilient, scaled and profitable companies, in a reversal of the growth-at-all-costs paradigm from the past two years. As the macro-environment stabilises while inflation and interest rates are expected to peak in 2023, sectors with long-term structural tailwinds driven by digital transformation will be well positioned to attract investor interest and access capital in resurgent M&A and fundraising markets.
Find out more about the deals on which we have advised across the world in 2022, as well as our previous transactions, here.
We wish you a wonderful festive period.