AutoTech & Transportation Software M&A Update – July 2024

AutoTech & Transportation Software M&A Returns to Historical Levels

Capstone’s latest Automotive Technology (AutoTech) & Transportation Software Sector Update reports that merger and acquisition (M&A) transaction volume in the AutoTech & Transportation Software space has returned to historical norms of 350-370 transactions per annum after reaching a record 536 transactions in 2021. This return to historical levels of M&A activity is consistent with the broader Software market as the 2021 surge fueled by a COVID deal hangover and concerns about a potential increase in capital gains tax rates have faded, market conditions have become more challenging, and higher interest rates have negatively impacted private equity returns. Since the beginning of 2023, three billion-dollar deals, two transactions between $500 million and $1 billion, and ten transactions between $200 million and $500 million in enterprise value have been completed. Capstone continues to be very active in the sector including advising TripShot on its sale to Transit Technologies, a portfolio company of Greater Sum Ventures and PSG Equity (April 2024, terms confidential).

Revenue multiples paid for M&A targets in the AutoTech & Transportation Software space have decreased considerably as valuations have returned to more sustainable levels and distressed transactions have become a larger part of the mix. The correction in the AutoTech & Transportation Software sector has been consistent with the valuation trends in the broader Software market. The Software M&A market has become bifurcated where Rule of 40-plus companies with strong customer retention continue to command premium multiples while lower growth companies with weaker retention and higher burn rates are trading at significantly lower multiples compared to the 2021 peak. The Autonomous Navigation & Connected Car and Dealer Listings & Aftermarket Software subsegments have commanded premium multiples based on strong growth rates and higher pure-play Software-as-a-Service (SaaS) margins. M&A targets in the Fleet Management/Telematics segment typically receive lower multiples because their business models often include a hardware component that negatively impacts the overall margin profile. More mature segments like Warehouse Management and Supply Chain Software tend to trade at lower multiples as well.

Public company valuation multiples in the AutoTech & Transportation Software sector reached a peak in 2021 and then returned closer to 2018 levels following the 2022 market correction. While the median revenue multiples for AutoTech & Transportation Software appear to be low compared to the broader public company Software market, it is important to note that companies in certain segments do not have pure-play software business models. For example, fleet management companies often have a hardware component and online automotive listings companies typically have a transaction-based model with lower margins.

Also included in this report:

• A breakdown of M&A and public company multiples in the AutoTech & Transportation Software sector.
• A detailed analysis of the most active strategic and private equity buyers in the sector to-date.
• Why Transportation Management Software segment participants have drawn strong buyer interest and premium M&A multiples through year-to-date.