Cisco & Splunk Continue the Trend of SaaS Take Privates
Earlier today, Cisco announced its intention to acquire Splunk for $28b, a 30% premium to the closing price.
Reviewing the financials, we see Splunk is a very healthy business.
|Net Income Margin||-7.6%|
|Cash Flow from Ops Margin||12.2%|
|Estimated Sales Efficiency||0.60|
|Forward Multiple pre-M&A||4.2|
|Implied Forward Multiple post-M&A||5.7|
|Predicted Forward Multiple based on Market Comps||7.5|
$3.6b in revenues growing at 37% places the business in the top quartile of public software companies. The 78% gross margin is 6 percentage points greater than the public median.
The estimated sales efficiency at 0.6 is top quartile. This means for every sales and marketing dollar invested the company purchases an additional 60 cents of gross profit in the next period. The net income margin of negative 7.6% is in line with most other software companies.
Now let’s examine the valuation of the business. before the announcement of the acquisition a company traded at a 4.2x forward revenue multiple. The implied multiple after the M&A is 5.7x, assuming the acquisition price is at $28b.
Our internal model predicts the forward multiple based on similar companies should be about 7.5x. It was a bit overoptimistic with the Klaviyo valuation (predicted $10b ; it opened at $9.3b & actual as of today is $8.5b) but this may be due to the recent downdraft in the market after the Fed indicated a longer period of high-rates & alluded to potentially raising rates once more this year.