When it comes to exits for industrial IoT startups, IPOs are unlikely; corporate M&A is where it’s at. And from a multiples perspective, software companies have it better than hardware firms. That’s according to David Kalez, a managing director at Keybanc Capital Markets. Kalez spoke at the McRock Industrial IoT Symposium earlier this month in Montreal; you can view slides from his presentation here.
They are chock-full of useful acquisition data. After kicking things off with the acquisition data, he then moved to popular M&A myths. Many of the myths he talked about were generic, but a few were especially relevant for industrial IoT M&A.
For example, in referencing the chart above, Kalez noted that while many of the deals over the past eight years have involved hardware companies, software firms get paid higher multiples. This makes a lot of sense. In the industrial IoT, buyers are generally giant industrial conglomerates looking to pick up products that are easy to integrate or resell.
Hardware companies can be an easier buy, because they can slip right into an existing product offering and sales structure. However, if you want to embark upon a digital transformation and need a way to really build up a strategically important capability, then software companies are where the value lies. It’s tougher to integrate software companies, but ultimately worth more down the line. That could explain the difference in multiples.
Kalez also made the point that strategic buyers on the corporate side are more likely to evaluate a deal based on potential “synergies” than strict financial metrics, which often means they’re willing to pay more than the likes of, say, a private equity fund. As to his list of top buyers, I was surprised to hear the names of smaller and in some cases much more industrial-facing companies than the usual suspects like Bosch, PTC, and Siemens. They include AspenTech, which makes software for the process control world, and Hexagon, which makes precision-measuring technology. Neither of those had been on my radar, but they are now.