M&A multiples in Q2

by

Sammy Abdullah

Software Equity Group is an investment bank that puts out research on SaaS markets. They just released their latest report on Q2. A summary is below but the full report may be found at M&A volume is still strong. There were 897 deals in Q2, up slightly from Q1. Similarly Q1 was a strong improvement over Q4, “growing 21% over 4Q22.” However we note that H2 2023 volume of deals (855+897) was well below H1 2022 (1120+1014).

Multiples are down to 5.6x LTM revenue on average and 4.7x on median. While they may be down from 2022, we’d note that 5.6x is in line with multiples during 2019 and early 2020, when the software market was saner. SEG’s commentary here: “Despite 2Q23’s median multiple, SEG continues to see exceptional outcomes being commanded primarily from businesses exhibiting top tier KPIs (strong rule of 40 weighted evenly between growth and profitability, strong gross retention, etc.). Premium multiples are also consistently rewarded to businesses serving durable customer bases with strong product differentiation and a competitive moat.”

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. Please reach out to them to learn more about their investment banking practice. Thank you for your readership.

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at sammy@blossomstreetventures.comhttps://blossomstreetventures.com/metrics/