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Monthly Archives: March 2016

Don’t confuse ARR and Forward Revenues

Clare Capital, Investment Banking, Metrics, New Zealand, SaaS, Technology, Valuation Leave a comment

Not all revenue multiples are equal.

99%> of the time EV/ARR multiples should be greater than EV/Forward Revenue multiples, it is therefore very important to understand the difference between the two.

In both of these multiples, the Enterprise Value (EV) remains constant, it is the measure of revenue that is changing. Annualised Recurring Revenue (ARR) is the current Monthly Recurring Revenue multiplied by 12, whereas the Forward Revenue is the total forecasted revenue for the next financial year. Assuming the company is growing, then Forward Revenue will always be higher than ARR and therefore, EV/Forward Revenue will always be lower than EV/ARR.

The relationship between EV/Forward Revenue and EV/ARR is explained by growth. The faster a company is growing the bigger the difference between EV/ARR and EV/Forward Revenue multiples.

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Evolution of SaaS Multiples

Clare Capital, Investment Banking, Metrics, SaaS, Technology, Valuation Leave a comment

Is profitability, or, at least, a path to profitability, becoming more of a factor in valuation multiples for SaaS companies?

Recently there has been considerable coverage of how median valuation multiples have fallen for publicly listed SaaS companies and the impact that this is having on multiples employed by private companies. To add to this debate Clare Capital has analysed the annual change in Forward Revenue Multiple for 73 public SaaS companies.

From this dataset, more than 80% of the companies (60) have experienced a reduction in valuation multiple and as a group the median valuation multiple has fallen by more than a quarter for the annual period (other SaaS commentators have been highlighting even larger declines, for example, see Tomasz Tunguz‘s blog post on the decline in SaaS Valuations).

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