Insight Bite: Flurry of deals hots up the software testing market

The market for automated software development testing tools is hotting up, as PE players are showing particular interest in this niche market. 

Three notable deals have taken place this year alone.

Most recently in October, Idera acquired Ranorex, a provider of cross-platform automated GUI testing software based in Austria. Idera, a portfolio company of TA Associates, is a parent of a family of global B2B software productivity brands. Idera will incorporate Ranorex in a move that doubles the size of its Test Management Tools business. “Automated testing is an integral part of many modern testing organisations, and Ranorex is a clear leader in that space,” said Wilson Warmack, general manager of Idera’s other testing business Gurock.

This follows on from August’s news that PE giant Apax will acquire ThoughtWorks, a software consultancy and development tools company. The company originally developed Selenium, a widely used open-source software testing framework for web applications, and now has a substantial presence in automated testing through Gauge, launched in 2015.

In May, PE outfit Francisco Partners acquired software testing company SmartBear, providing a capital injection to boost growth already fuelled by the demand for solutions to manage the lifecycle of applications and APIs.

And last year, in January 2016, Carlyle acquired TestPlant, an automated GUI testing business in the UK, stating that the acquired company had become “a leading software supplier among a new breed of innovative software testing tools providers”.

The pressure is building in the industry to speed up and automate software development workflows. Players are also finding that overly complex solutions aren’t cutting it anymore – a low-code approach is required so the software can be used by a wider range of professionals within organisations.

The rationale behind these deals is a desire to consolidate across the various areas of software development and testing tools, so we expect to see multiple add-on acquisitions by these players. And in turn, the hope is that this acquisition spree will eventually create attractive targets for the 800 pound gorillas in the software testing space, as well as the major players in development tools and electronic design automation (EDA).

We expect that the smaller players in the software development testing tools market will continue to feel the heat as interest continues to grow. For companies looking for an exit, this might be a good time to move, as the multiples are looking pretty attractive.

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