An Investment bank called Software Equity Group puts out a fantastic overview of the SaaS M&A market every quarter. It’s publicly available on their website, and below we summarize some of the high points.
-The median revenue multiple is 4.6x. There were 195 SaaS M&A deals in Q2 with a median revenue multiple of 4.60x. 195 deals is slightly below last quarter’s 205 deals, but the revenue multiple was a high over the past 3 years. 40% of the buyers were private equity backed software companies, 31% were public companies, 21% were private companies with no private equity sponsor, and 8% were private equity groups.
-But that doesn’t mean 6x+ isn’t achievable. Over the past 3 years, 29% of SaaS companies were acquired for 6x+, 41% sold at 3x to 6x, and 30% sold for 3x or less.
-CRM & marketing are most active. The most activity is in the CRM & marketing space (48 deals), followed by analytics and business intelligence (22 deals). 32% of companies acquired were vertically focused. Top vertical categories by deal volume include Education (14.3%), Retail (12.7%), and Real Estate (11.1%).
-$20mm to $50mm of revenue is the sweet spot. Over the last 3 years, companies with less than $5mm of revenue tend to sell for 2.9x on median, $5mm to $10mm of revenue sells for 3.5x, $10mm to $20mm sells for 4.0x, $20mm to $50mm sells for 4.9x, $50mm to $100mm sells for 4.4x, and $100mm+ sells for 3.8x. There is a such thing as getting so big that you price out many potential buyers and limit what a buyer can pay, thereby pressuring your exit multiple.
The full report is fantastic and well worth the read. Thanks SEG.