Software Equity Group is an investment bank that puts out research on SaaS markets. They recently released their Q2 report. A summary is below but the full report may be found at https://softwareequity.com/research/.
M&A volume has settled. There were 731 software deals in Q1, down from the 823 in Q1 2023 and far off from 2021 and 2022’s volumes (3,476 and 3,367). Late 2021 and early 2022 saw crazy volumes that were driven by abnormal euphoria. 2018, 2019, and 2020 were much more normalized and healthy periods (2,642, 2,795 and 3,054, respectively). While we may be down from 2021/2022, the market is still healthy relative to a longer historical lookback.
Multiples are up slightly to 5.4x LTM revenue on average and 4.0x on median. We’d argue these multiples are abnormally low because they’re being pulled down by distressed transactions and all software deals, not just pure SaaS, so the thing to look at is the trend, not necessarily the level. Hopefully, the trend is showing us we’re bottoming.
Private equity volume is still the majority. Private equity investors comprised a majority share of SaaS M&A, comprising 58% of deals in Q2, down from 59% in Q1. Public strategic companies were 23.1% of the volumes.
Verticals and industries. Vertically focused businesses were 40% of all SaaS deals in Q2 2024. In Q1 2023 the number was 49%.
Our view: the market is normalizing to more sustainable levels. The great M&A market we saw in late 2021 and early 2022 is over, but the current market is more akin to what we saw in 2018/2019. 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.
Thank you for your readership. Visit us at blossomstreetventures.com for more SaaS data and blogs. Email the author at sammy@blossomstreetventures.com
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