The news hit the wire this morning that business software company Deltek is being acquired by Roper Technologies, Inc. Taken private by Thoma Bravo in a deal that closed in 2012, Deltek managed to continue its growth, acquire several new products for it’s portfolio of software focused on project based businesses, and set an aggressive path to reinvent itself as a modern cloud services provider. According to the announcement Deltek will continue to operate as a separate entity and brand, and the current management team will remain in place. The deal, valued at $2.8B in cash, is set to close by the end of 2016.
Roper Technologies operates a group of technology companies that serve distinct vertical or niche technology markets. The current portfolio serves the healthcare, education, food, academic research, energy and water industries and includes medical and scientific imaging, energy systems and controls, RF technology and software, and industrial technology like valves, pumps, test and measurement equipment, automatic meter reading (AMR) equipment and a variety of other items. Since its founding in 1983, Deltek has built and acquired software that serves businesses with project delivery at their core and serves the government contracting, professional services, architectural, engineering and construction, project manufacturing, and marketing and advertising services industries. With its deep expertise and focus on project based businesses, Deltek seems like a natural fit for the Roper Tech portfolio.
Deltek, once a traditional on premises software vendor, started a journey several years ago to reinvent itself as a modern cloud services company. The path from one business and architectural model to another is never easy, as software industry giants like Oracle and Microsoft would attest. Both of those companies have spent years in the transition to a cloud and subscription based company, a project that is still ongoing. Deltek, with investment and support as a private company in the Thoma Bravo portfolio, has aggressively moved down the transition path, and now has a significant amount of its business from subscription based software as a service (SaaS) offerings. Much product work has already completed and several key initiatives are set to roll out in the near future. One of the early decisions has supported Deltek’s growth very effectively, as they chose to partner with Amazon Web Services (AWS) for cloud infrastructure instead of building expensive data centers and building out their own cloud infrastructure.
2016 has continued to be an active acquisition year for the business software sector. Multiples for SaaS companies varied, but in general continued to be strong, particularly for companies that had previously been public. The $2.8B spent for Deltek is slightly over a 6X multiple on 2016 revenue, if my estimates are correct (Deltek is private and does not publicly release earnings. Today Roper projected Deltek 2017 revenue at $535M). By comparison the multiple for Marketo, acquired earlier this year by private equity, was around 8X revenue, and Salesforce paid $2.8B to acquire Demandware on 2015 revenue of $237M. Revenue isn’t the only story of course, growth is also a key indicator of health, and while Deltek’s growth isn’t public either, I would guess that subscription revenue is growing in double digits (year over year %). So all in all, the deal seems like a reasonable one, especially taking into account Thoma Bravo’s 2012 price of $1.1B, although you would also have to take into account the investments that were made since then in acquired companies, including HRSmart and several others.
What does this mean for Deltek customers? Based on what I know so far, and the public statements, there should be no negative impact for customers. The acquisition is good news for current customers for several reasons:
- It ends any speculation on Deltek’s future while owned by private equity
- It provides a larger and stable home for Deltek in a company that has a track record of investing in growth in its portfolio businesses
- With more financial support its likely that Deltek with be able to accelerate its transformation to the cloud, which is simply executing the current plan with more resources and support.
- The same team continues to execute the current strategy and operating plan, which provides consistency and maintains current relationships.
[corrected for purchase multiple based on new revenue data]