Software Equity Group is an investment bank that puts out research on SaaS markets. They just released their latest report on Q4. A summary is below but the full report may be found at https://softwareequity.com/research/.
M&A volume was up from Q4. There was an improvement in Q1, “growing 21% over 4Q22,” however we note that Q1 2023 volume of deals (855) was well below Q1 2022 (1120). Late 2021 and early 2022 saw crazy volumes. 2019 and 2020 were much more normalized periods, and Q1 2023 (855 deals) was above the Q1 2029 level (692), Q1 2020 level (726), and even Q1 2021 (780). That was a lot of numbers. In summary, while we may be down from 2022, the market is still healthy relative to a longer historical lookback to Q1 2019. We are normalizing.
Multiples are down to 5.2x LTM revenue. While they may be down from 2021 and 2022, we’d note that 5.2x is in line with multiples during 2019 and early 2020, when the software market was saner.
Private equity volume is at a record. PE deals accounted for “61.1% of SaaS deals. This is primarily due to the combination of record amounts of available capital and public strategic acquisitions decreasing notably YOY due to downward pressure on public valuations. Noteworthy deals include Silver Lake’s acquisition of Qualtrics ($12.5B), Blackstone’s acquisition of Cvent ($4.6B), and Vista Equity Partners’ acquisition of Duck Creek Technologies ($2.6B).”
Our view: the market is normalizing to a very healthy level. The great M&A market we saw in late 2021 and early 2022 may be over, but the market is still good. We’d call it healthy. Big thanks to SEG for putting the data together.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at firstname.lastname@example.org. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.