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.