The year 2016 will go down in the history books as another year of impressive growth in the Enterprise cloud software space — and the numbers prove it.
Last year there were 31 cloud software companies that were publicly held and commanded a market capitalization north of $1 billion. Together, they reported average annual revenue growth of nearly 25 percent, and saw their share valuations grow by more than 30 percent, beating the year’s performance of the Dow Jones Industrial Average, the NASDAQ and the S&P 500.
And the year just passed was notable for another reason: Cloud companies with businesses aimed at vertical industries became juicy buyout targets for large horizontal software companies. Oracle was a leading buyer, and spent a combined $1.2 billion on two of these industry cloud companies: Opower, which is focused on the energy industry, and Textura, which processes payments for the construction industry.
In aggregate, deals for industry cloud companies totaled more than $12 billion in 2015 and 2016. We think this buying trend will intensify into a full-blown buying spree in 2017. Here’s one reason why: Traditional acquirers like Oracle, IBM and Salesforce now find themselves in an increasingly crowded field of potential buyers that includes non-software companies attempting to deepen their value proposition within vertical industries.
Some of these buyers will come from outside the traditional confines of software and technology. Consider three deals from 2016: Last year, GE spent $915 million to acquire one of our portfolio investments, ServiceMax, a service cloud platform, and Verizon spent a combined $5.8 billion to acquire two telematics firms, Fleetmatics and Telogis.
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