M&A multiples in SaaS continue to be attractive

Software Equity Group, an investment bank we hold in very high regard that has represented some of our portfolio companies, recently released their Q3 2017 snapshot of the SaaS M&A market.  Below are some of the data and charts we found most interesting:


Valuations continue to be elevated.  As SEG puts it, on the 204 SaaS M&A transaction in Q3 2017, the median SaaS revenue multiple was 4.5x trailing twelve month revenue, and “median EV/Revenue multiples have been hovering around an all-time high for much of the past two years.”


-Private equity is very active.  “40.9% of the quarter’s SaaS sellers were bought by equity backed strategic buyers. Again, equity backed strategic buyers acquired more SaaS companies than their publicly traded strategic buyer counterparts.”


-One in four is vertically focused.  “25% of all SaaS sellers were vertically focused, a notable decrease from the 32% of vertically focused SaaS deals during 2Q17.”  Education was the most active.


-There is a premium for >$10mm of revenue.  “Generally, a higher premium is achieved for SaaS sellers that have scaled. However, the 3.4x multiple received by the largest SaaS sellers is driven by a disproportionately high number of PE buyers and underperforming publicly traded software companies being acquired (including Jive, IntraLinks, Constant Contact, and OPOWER).”

-30% of the time, the multiple is greater than 6x or less than 3x.  “Over the past 3 years, nearly one third (28.7% of companies) of SaaS companies were acquired for 6.0x or greater; nearly another third (36.2% of companies) for 3.0x to 6.0x; and the remaining balance (35% of companies) were acquired for 3.0x or less.”

Overall, it’s still a great time to sell in the environment.  Big thanks to SEG for compiling the data. 


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