What is Your SaaS Startup Worth in an Acquisition?

What is your SaaS startup worth in an acquisition? To answer that question, we can analyze the data set of all software companies acquired over the last six years and benchmark them by enterprise value-to-revenue multiples.

What is your SaaS startup worth in an acquisition? To answer that question, we can analyze the data set of all software companies acquired over the last six years and benchmark them by enterprise value-to-revenue multiples.

The enterprise value or EV is the price the company sold for, minus the cash on its balance sheet. Not every EV/Revenue multiple is known, but this data set can provide us some directional guidance on how the market has changed.

The chart above shows the median multiple across all software acquisitions. It has varied between 3x and 4x and declined over the last three years. This figure takes into account all acquisitions, including old and slow growing software companies.

If we break apart the data set by quartile, we see the dispersion of the multiples better. The median premium companies are fetching between 6x-7x trailing revenues. In 2013, acquirers paid the highest multiples for premium companies at more than 8x. Since then, the public market has vacillated, SaaS multilpes fell by 57% and are now slowly reverting to the mean. In parallel, buyer willingness to pay has decreased and kicked up, as we projected earlier this year.

If we look at the maximum multiple attained by year, we see a similar pattern. 2013 was a banner year, followed by a steep drop in 2015 and a slight recovery in 2016 at 11.5x.

2016 has been a year of public companies acquiring other public companies; and private equity firms taking private large software companies. We haven’t yet seen material consolidation of SaaS startups, which may take place in 2017.

EV/Revenue multiple is a composite metric. There are many underlying figures that influence it including growth rate, management team, competitive differentiation, strategic importance to the buyer. And of course, if founders develop the right auction pressure, then sometimes acquirers can be pushed north of these ranges.

Published 2016-12-07 in Exits 


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