Download - SaaS Valuations & Revenue Growth
SaaS Company Revenue Growth & Market Valuation
April 2014
About SEG
• Twenty-one year, exclusive focus on software advisory services to lower middle market (i.e., client revenue $5M - $50M) representing companies seeking:
• Strategic exit • Growth capital • Buyout • Inorganic growth via acquisition • Fairness opinions and valuations • Board advisory services
• Clients span virtually every technology, product
category, delivery model and vertical market • Global presence providing advice and guidance to
more than 2,000 private and public companies throughout US, Canada, Europe, Asia-Pacific, Africa and Israel
• Strong cross-functional team leveraging transaction, operating, legal and engineering experience
• Unparalleled software industry reputation, track record and industry research
• Highly referenceable base of past clients and buyers / investors
Focus on Advice
Multi-service
Multi- Industry
Focus on Software
Advisory Boutiques
Bulge Bracket Firms
IPO Boutiques
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
2013 SEG Successes
has received a growth equity investment from
2013 Transactions
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
Strong Industry Experience
has received a growth equity
investment from
Allen Cinzori, Managing Director, leads SEG’s M&A and growth capital advisory practice. Allen has advised on numerous domestic and international transactions. During his career with SEG, he has advised and led more than 50 middle market and lower-middle market transactions across the software and internet sectors. He holds an MBA degree with highest honors (Beta Gamma Sigma) from the University of Southern California's Marshall School of Business, and a Bachelor of Science in Engineering (Cum Laude) from California Polytechnic State University.
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
Select Transactions Led
SaaS PUBLIC COMPANY MARKET UPDATE
SEG SaaS Index: Key Public Company Performance Metrics
Measure 4Q12 1Q13 2Q13 3Q13 4Q13EV/Revenue 4.9x 5.5x 6.2x 7.3x 8.3xEV/EBITDA 38.2x 35.4x 30.2x 39.8x 57.0xEV/Earnings 40.2x 63.9x 106.1x 125.3x 81.9xGross Profit Margin 70.9% 70.8% 70.8% 70.3% 70.7%EBITDA Margin 5.9% 3.2% 1.4% 1.2% 0.2%Net Income Margin -1.6% -3.9% -4.4% -4.9% -5.0%TTM Revenue Growth 26.8% 25.3% 25.0% 27.3% 26.1%TTM Total Revenue ($M) $117.5 $127.7 $143.1 $163.8 $173.4TTM EBITDA Growth 5.9% 3.2% 1.4% 1.2% 0.2%TTM Total EBITDA ($M) $5.6 $4.0 $2.6 $1.2 $0.1Cash & Eq ($M) $67.4 $75.3 $76.2 $92.0 $107.7Current Ratio 1.6 1.9 1.5 2.3 2.6Debt / Equity Ratio 6.7% 6.5% 7.1% 10.3% 11.4%
SEG - SaaS: Median Metrics
• The SEG SaaS Index tracks public companies that primarily offer hosted, on-demand software under a subscription and/or transaction based pricing model
• The SEG SaaS Index is currently comprised of 43 public pure-play SaaS companies*
• Revenue growth is highly correlated with valuation multiples
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
The SEG SaaS Index: Public Company Market Multiples
7.5x
3.3x2.6x
3.6x
4.5x5.0x
7.3x
2007 2008 2009 2010 2011 2012 2013
EV/R
even
ue M
ultip
le
65.2x
36.9x31.4x 32.2x
35.2x 35.0x
48.2x
2007 2008 2009 2010 2011 2012 2013
EV/E
BITD
A M
ultip
le
Median EV/Revenue - Annual Median EV/EBITDA - Annual
• After plunging to 2.6x in 2009, the median EV/Revenue of public SaaS companies has made a stunning comeback, climbing steadily for four consecutive years to finish 2013 at a whopping 7.3x.
• Compared to this 180% increase in the SEG SaaS Index median EV/Revenue multiple, the median multiple of public on-premise software companies grew 106%. At the close of 4Q13, the median EV/Revenue multiple of public SaaS companies is more than twice that of their on-premise software counterparts.(7.3x vs. 3.1x).
• The stunning growth in median EV/Revenue of public SaaS companies reflects investors enthusiasm for 25%+ revenue growth, recurring revenue, immense market opportunities (enterprise and SMB), and an M&A feeding frenzy targeting rapidly growing SaaS providers.
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
The SEG SaaS Index: Public Company Market Multiples
0.0x2.5x
4.6x6.9x 7.2x 7.7x
21.2x
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
<= 0% > 0%<= 10%
> 10%<= 20%
> 20%<= 30%
> 30%<= 40%
> 40%<= 50%
> 50%
Med
ian
EV/R
even
ue
TTM Revenue Growth
11.9x
5.3x 5.7x6.5x
4.5x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
<= 0% > 0%<= 10%
> 10%<= 20%
> 20%<= 30%
> 30%
Med
ian
EV/R
even
ue
TTM EBITDA Margin
EV/Rev Multiples vs. TTM EBITDA Margins – 4Q13 EV/Rev Multiples vs. TTM Rev Growth Rates – 4Q13
• Throughout 2013, profitable SaaS companies were penalized with lower market multiples, as investors perceived profitability to have come at the expense of growth.
• As proof, note the very strong correlation between the median TTM revenue growth rate and median EV/Revenue multiple of public SaaS companies. Public SaaS companies that grew TTM revenue below 10% received multiples significantly below their high growth peers.
• Adjusting EV/Rev multiples to account for public to private liquidity discount* would reduce valuations for 0-10% and 10%-20% growth companies to 1.9x and 3.5x, respectively
* SEG uses industry standard 33% public to private liquidity discount
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
SaaS M&A UPDATE
SaaS M&A: Deal Volume
2639
45 48
68 6559
94 9486
10497
103
0%
5%
10%
15%
20%
25%
30%
0
20
40
60
80
100
120
SaaS
M&
A De
als a
s a %
of T
otal
So
ftw
are
M&
A De
als
# of
Saa
S M
&A
Deal
s
SaaS M&A Deals SaaS as % of Software
50
105
200
312
390
0
50
100
150
200
250
300
350
400
450
2009 2010 2011 2012 2013
# of
Saa
S M
&A
Deal
s
SaaS M&A Deals
SaaS M&A Volume - Annual SaaS M&A Volume - Quarterly
• There were 103 SaaS M&A transactions in 4Q13, on par with 2Q13’s 104 SaaS M&A transactions. SaaS M&A transaction volumes in 2Q13, 3Q13, and 4Q13 were each greater than any prior quarter on record.
• Average quarterly SaaS M&A transaction volume in 2013 was 680% higher than in 2009.
• In 2013, there were 390 SaaS M&A transactions, a 25% increase over 2012’s 312 transactions SaaS acquisitions.
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
SaaS M&A: Exit Multiples
16
2.7x3.2x
3.7x 4.1x 4.1x
2009 2010 2011 2012 2013
4.1x 4.0x 4.0x 4.3x 4.1x
4Q12 1Q13 2Q13 3Q13 4Q13
• The median exit multiple for all SaaS transactions on a TTM revenue basis remained relatively constant throughout 2013, except for a bump up in 3Q13 due to a number of lower multiple transactions in 3Q12 falling out of the TTM analysis.
• The 4.1x median SaaS exit multiple for all of 2013 was 86% greater than the 2.2x median on-premise exit multiple for 2013.
• As expected, SaaS M&A exit multiples are strongly correlated with TTM revenue growth
Public Company SaaS Exits: Multiple vs. Revenue Growth
Median SaaS EV/Rev Exit Multiples - Quarterly Median SaaS EV/Rev Exit Multiples - Annual
ExactTarget, Inc.
Responsys, Inc.
Eloqua, Inc.
Rightnow Technologies
Hostopia.com Inc.
Greenway Medical
Technologies Kenexa Corp.
Taleo Corp.
Success Factors
Keynote Systems, Inc.
Pironet NDH AG
Ariba Inc.
DemandTec Omniture Inc.
Market Leader, Inc.
Convio, Inc.
Convio, Inc.
Kintera, Inc.
0.0x1.0x2.0x3.0x4.0x5.0x6.0x7.0x8.0x9.0x
10.0x
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
TTM Revenue Growth
EV/R
ev M
ultip
le*
* 33% public to private liquidity discount applied
• The 390 SaaS acquisitions in 2013 were spread across a wide number of product categories and verticals.
• CRM and Marketing once again led all product categories in acquisition activity, accounting for 15.1% of deals in 2013, slightly lower than 17% in 2012.
• SaaS mega-deals in the CRM/Marketing cateagory, including Oracle’s acquisition of Responsys, Adobe’s acquisition of Neolane, and Salesforce’s acquisition of ExactTarget, helped drive M&A activity in the product category
• CRM/Marketing buyers are seeking targets that can help garner a greater share of IT capital in spending on online marketing technology. According to Gartner, by 2017 the CMO will purchase more IT than the CIO.
• The Talent & Workforce Mgmt product category claimed only 6.4% of SaaS transactions in 2013, compared to 12% in 2012. After a three-year period of consolidation by the large HR software providers, the M&A window for many smaller HR SaaS providers is rapidly closing.
SaaS M&A: Deal Volume By Product Category
CRM, Marketing & Sales15.1%
Data Mgmt & Integration1.8%
Dev. Tools & IT Asset Mgmt1.0%
eCommerce4.1%
Engineering, PLM & CAD1.8%
ERP0.8%
HR & Workforce Mgmt6.4%
Messaging, Conferencing & Communications
6.2%Multimedia, Graphics &
Communications1.8%
Network Performance Mgmt0.5%
Security3.8%
Systems Mgmt7.7%
Supply Chain Mgmt & Logistics
4.9%
Automotive1.5%
Construction1.0%
Education4.4%
Financial Services4.6%
Healthcare2.3%
Hospitality0.8%
Insurance2.1%
Legal0.5%
Non-Profit0.8%
Other Verticals3.8%
Public Sector0.5%
Real Estate4.1%
Retail2.8%
Telcom0.3%
Accounting & Finance2.3%
Billing & Service Provisioning
1.3%
BI, Risk & Compliance6.7%
Content & Document Mgmt4.4%
Vert
ical
s
Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL