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Process software and automation landscape: accelerating innovation paired with climbing profitability levels

22 Dec 2023

Our latest process software and automation sector report highlights dynamics and developments, as well as M&A trends in the automation and business process software industry.

> Download the full report here

For busy readers in a nutshell:

It’s early days, but the uptake of process automation and adjacent software is becoming pervasive across all sectors, with the highest growth coming from government sectors

  • Amid rapid advances, automation tools – often pioneered in tech and product teams — are now a focus at the leadership level and are seeing a wider usage pattern across the entire organization. Low/ no-code tools are being used in marketing, sales, customer support, finance, and other areas
  • Use of automation and specialized process tools has spread from the traditional “automation-embracing” sectors (insurance, finance, health) to a wider spectrum of industries, with growth in the government sector leading the way

Inflation and high labor costs have put a spotlight on R&D and investment in process tools; development costs are capturing a growing proportion of Opex

  • Within the Carlsquare Process Software and Automation index, R&D captures 22% of every dollar spent on total operating expenses – the highest level observed since 2018

After a period of very high valuation levels among public companies in the automaton and diversified process segments, both groups have stabilized and converged with horizontal process software over the last six months (between 6-7.5x revenue)

  • The diversified process subsector has historically traded at more stable levels (between 5-7.5x revenue)
  • Automation specialists and horizontal process companies (the latter group peaking at a median revenue multiple of nearly 18x in Q4 2021) have now stabilized to a median 6.6x multiple

Profitability is increasing dramatically across each subsector

  • Automation companies have swung from a median -6% loss in 2022, to marginal profitability in 2023, and forecasted to grow to 22% EBITDA margins in 2024E. Profitability has similarly increased from 2023 to 2024E in Horizontal (9% to 28%) and Diversified Process (25% to 38%)
  • Although large and diversified process software players exhibit the highest profitability levels (EBITDA margins in the mid 20s in 2023 and growing to high 30s in 2024), as mature and scaled groups they are forecasted to achieve lower levels of growth (just 11% in 2024E). Horizontal process companies achieved similar growth levels with slightly lower profitability around 30%
Process software and automation landscape: accelerating innovation paired with climbing profitability levels