#IGV, a major exchange-traded fund (#ETF) that tracks the performance of the US software sector, has witnessed a challenging first half of 2024, gaining just 1%.

As a #result, software has been broadly underperforming the semiconductor sector, which has surged 30% year-to-date.

According to #Jefferies_analysts, investors have been favoring semiconductors, where the benefits of artificial intelligence (#AI) have been more apparent in financial metrics.

Despite the underperformance in the software sector, mergers and acquisitions (M&A) activity has rebounded significantly in 2024, surging by 238% year-to-date after a steep decline of 75% in 2023, Jefferies highlighted.

An exemplification of this trend is the recent acquisition of Squarespace by private equity firm Perima for $6.9 billion, which implies a next twelve months (NTM) revenue multiple of 5.5x.

Moreover, recent media reports have indicated that #Bain_Capital is strategically interested in acquiring #PowerSchool Holdings at an enterprise value of $6 billion. This potential deal suggests a mid-20s share price and a 7x 2025 estimated revenue multiple, although neither company has publicly commented on these reports.

“We note that $59B of large Software M&A (greater than $1B EV) has been announced in ’24 YTD, 4 of those deals being strategic M&A and the remaining 4 being private equity take-outs,” analysts at Jefferies said in a note.

Citing their analysis of M&A activity in the software sector from January to May, dating back to 2018, the investment bank highlighted that 2024 has recorded the second-highest level of activity in the past seven years. This surge is only surpassed by 2022, which set a record for M&A in the sector.

Looking ahead, analysts expect this uptrend “to continue in the near term as take-out multiples remain attractive.”

“We believe rebounding M&A should provide support to valuation near term,” they added.

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