Yesterday, SAP announced it would acquire Concur for $8.3B, the single largest SaaS acquisition in history in dollar terms.
To put this acquisition in context, I looked at six other public-to-public acquisitions, where one publicly traded company acquired another. Because the acquired target is public, much of their financial information is readily available. As the chart above shows, the Enterprise Value/Trailing 12 Month Revenue (EV/TTM Rev) multiple SAP paid for Concur is tied for the highest among any public-to-public SaaS acquisitions.
|Transaction||Price ($M)||TTM Rev ($M)||Growth Rate||Gross Margin||Year of Acquisition||Enterprise Value||EV/TTM Rev|
Above, I've copied a table that compares the key data points across acquisitions. Across these seven transactions, Concur generated the most revenue. Concur's gross margins of 63% are a bit below the median of 66% and their growth rate equals the median.
It's easier to explain SuccessFactor's premium multiple because they recorded a 59% annual growth rate when they were acquired in 2011. But can we explain the pricing of these MegaExits for the rest of the sample?
Below, I've plotted two charts showing the relationship between a company's growth rate and the TEV/TTM Rev Ratio at acquisition, and the gross margin and the TEV/TTM Rev Ratio.
In both cases, the R^2, the measure of how strongly the variables are correlated are pretty weak. I tried to create a simple linear to model to predict the TEV/TTM Rev Multiple yields using these two variables in addition to revenue. But the model has no predictive power.
In other words, across this very small sample set, the financial fundamentals of the business don't really drive the multiples. Instead, factors like brand, management team, strategic importance and competitive auction dynamics seem to be much more influential over the ultimate selling price than income statement and balance sheet. Each of these massive acquisitions is a huge strategic move for the acquiring company and therefore, it's viewed as a snowflake, a one-of-a-kind-acquisition.
I'm certain we will quite a bit more fireworks in the SaaS M&A market. I'm curious to see how acquirer's thinking around purchase prices continues to evolve. But in almost every regard, Concur's sale to SAP is an exceptional event for the SaaS world.