Contact: Ben Kolada
Traditional IT service providers, accustomed to an on-premises model of delivering products and services, have been rapidly buying into the SaaS sector to fulfill enterprises’ demand for SaaS offerings. The result has been a rapid increase in both the volume and value of SaaS deals announced. The most notable are Oracle’s RightNow Technologies purchase, which just closed, and SAP’s highly valued SuccessFactors buy, which is expected to close very soon.
As businesses increasingly adopt cloud services, as opposed to packaged software maintained on-premises, the largest IT firms are increasingly looking to break into this industry. We’ve seen a record number of acquisitions of private cloud providers, but now public firms are attracting additional attention as well. In 2011, we recorded 200 announced SaaS transactions in The 451 M&A KnowledgeBase – just a baker’s dozen shy of the all-time record set in 2007. However, total spending on SaaS targets came in at a record $9.7bn, shattering the previous record set in 2008. True, the RightNow and SuccessFactors deals accounted for more than half of total SaaS M&A spending in 2011, but the overall volume of large acquisitions is on the rise as well. For example, last year we saw a dozen SaaS transactions announced valued at least at $100m – a steady uptick in big-ticket deal volume since 2008.
Driving these acquisitions, in addition to customer demand, is the SaaS sector’s enviable revenue growth rates. While IBM, for example, grew total revenue just 7% in 2011, our 451 Market Monitor colleagues projected that the global SaaS sector grew 22%. And according to ChangeWave Research, a service of 451 Research, SaaS remains the most popular cloud service. In a ChangeWave report, a whopping 61% of respondents said they were using some SaaS product. The report also noted that 28% of respondents expect to increase their SaaS spending over the next six months, more than any other cloud service ChangeWave covered in the report.
Acquisitions of SaaS vendors, 2005-2011