Businesses in the IT, technology and software sectors are having to adapt to rapid technological advancements, creating a fertile mergers and acquisitions (M&A) landscape.
A key trend is the growing interest from international buyers in South African tech and software companies. Canadian, US, European and UAE-based buyers, in particular, are increasingly drawn to South African businesses for their high-quality intellectual property (IP) and cost-effective solutions. We’re seeing global buyers seeking not just technology, but also customer bases, IP and regional access. This reflects a broader trend where buyers view M&A not only to acquire technology but also to expand their geographic footprint and leverage innovative, scalable solutions.
Recent Acquisitions Showcase South African Expertise
South Africa is home to exceptional software, IT and tech-related expertise and is proven by a spate of recent international (and local) acquisitions; although relatively small in relation to the US M&A market, in 2024, cheque sizes averaged between $10m - $30m and some upward closer to $100m, notably the following:
Lesaka Technologies acquired Adumo
Xero (New Zealand) acquired Syft
Advent International (US) acquired Syspro
Syntax (Canada) acquired Argon Supply Chain Solutions
Convergence Partners acquired Datacentrix
Wide Valuation Gaps in M&A Deals
In M&A transactions, it is not uncommon to witness significant differences in the bids that companies receive. A recurring observation is that the spread between the lowest and highest offers can often be as much as 50%, with exceptions stretching beyond even the 200% mark, highlighting the varying perceptions of a business's worth in the market. Such a wide range of offers reflects the complexity and unpredictability of M&A deals, with potential buyers bringing each their own diverse valuations and strategic considerations to the table. This trend has become an increasingly notable aspect of the current market environment, requiring a deep understanding of how businesses are valued and acquired.
Motivations of International Buyers
Understanding the motivations behind different types of buyers is critical for sellers. While some buyers prioritise expanding their customer base, others are more focused on acquiring specialised IP or establishing a regional presence. For example, a US buyer recently sought South African companies in cloud services, data security and disaster recovery to build its client base and enhance its market positioning. This diversification in buyer interests underscores the need for businesses to tailor their M&A strategies based on their specific strengths—whether in broad IT services or niche software solutions.
The diverse nature of the tech sector thus means that there is no one-size-fits-all approach to M&A transactions. Business owners must clearly understand how their service/product offerings align with the needs of potential buyers before going to market and framing their narrative.
Strategies for Sellers Preparing for M&A
There are a few key strategies for businesses preparing for an M&A transaction:
Demonstrate how your company complements potential acquirers’ existing operations, whether through broader IT services or specialised software solutions.
Tailor your pitch to the specific goals of buyers—whether they are looking for market expansion, valuable IP or new customer segments.
Always focus on highlighting customer quality, recurring revenue (ARR) and low customer churn.
Focus on growth, demonstrating scalability and strong growth potential for attracting the right buyers and achieving higher valuations.
The value of software companies, particularly those offering scalable solutions with recurring revenue streams, continues to rise. There is an undeniably common theme arising from buyers’ preferences to acquire companies with strong, contractually locked in, recurring revenue business models. As such, there is a direct link between ARR and deal valuations.
Why South African Tech Firms Are Attractive
South African tech businesses offer top-tier products at a fraction of the cost of their first-world counterparts, making them highly attractive to international buyers. This scalability and cost advantage are key drivers of the growing global appeal of South African tech firms.
Several themes emerge that put South Africa on par with other digital dynamos, such as India and the Philippines etc., where software businesses and development resources are becoming increasingly popular with first-world economies. International businesses are seeking benefits provided by cost-effective, highly skilled resources, access to massive talent pools and robust cash-strong businesses that have organically grown through challenging economic conditions.
Interestingly, the availability of capital is rife in the current global M&A market and contrary to seller logic, buyers won’t shy away from higher deal values to acquire companies with the right business models and untapped potential for growth. Deploying capital has thus never been the problem.
For this reason, one of the key advantages in today's South African market is the ability to produce the same product or output at a significantly lower cost. This presents a major opportunity for businesses. When combined with a strong customer base and recurring revenue streams, this creates an attractive proposition for any potential buyer, especially international buyers. The buying power of international prospects is a crucial factor in this dynamic, as they are often in a better position to afford larger investments. Moreover, international buyers can easily integrate quality assets, whether it's a business in South Africa or a software company, into their global networks, leveraging their established reach to drive growth and expansion.
However, tech and software businesses often challenge traditional valuation models, particularly those based on EBITDA (earnings before interest, taxes, depreciation and amortisation) or revenue multiples. For instance, rapidly growing businesses, even if not immediately profitable, can still command significant valuations due to their strong recurring revenue and scalability. For software businesses with high margins, the focus may shift from revenue multiples to EBITDA multiples, emphasising profitability and future growth potential, especially for international buyers looking to scale the business post-acquisition.
Creating ‘Deal Heat’ to Maximise Value
To maximise value in M&A transactions, of critical importance is creating ‘deal heat’—fostering competition among buyers to drive up offers. International buyers are often willing to pay a premium for the future growth they can bring to a business, especially in global markets. International buyers value the ability to scale a product in new regions, as that global scalability is one of the most attractive attributes for buyers, especially for North American buyers, as they are exceptionally proficient in leveraging global networks and driving sales growth.
The M&A market in the IT, tech and software sectors is expanding, offering significant opportunities for businesses that are well prepared. Understanding buyer motivations, positioning your business effectively and demonstrating growth potential are critical for navigating this evolving M&A labyrinth. With increasing international interest, especially in high-value tech assets like those in South Africa, businesses that strategically position themselves for M&A transactions can secure the best possible deals in this dynamic market.
About Deal Leaders International
Deal Leaders International (DLI) is a boutique M&A and Advisory firm specialising in helping business owners and executives, with a business EBITDA between R20 million and R300 million per year, engineer their growth-to-exit journey.
We go beyond traditional advisory services, partnering with our clients to design, execute and optimise strategies that achieve maximum value when selling their businesses.
Our mission is to empower our clients to achieve outcomes that align with their financial, professional and personal goals while positioning their businesses as highly attractive to the right buyers.
As the Africa representative of the Pandea Global M&A Network, DLI offers its clients both local and international expertise and experience. With 65 offices in 31 countries, over 2500 successfully completed transactions with a combined deal value over €30 billion, DLI offers deep market insights, practical expertise and a results-driven approach to prepare and successfully execute on business growth and exit strategies
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