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Evolution of SaaS Multiples

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).

But, 13 companies have experienced increases in valuation multiples.

Exploring this, the 73 companies can be split into two groups:

Group A – Those that have positive EBITDA margins, 14 companies; and

Group B – Those that have negative EBITDA margins, 59 companies;

50% of Group A experienced an increase in valuation multiples, whereas only 10% of Group B experienced an increase in valuation multiples

It is not an exact science, there are many other factors that influence the valuation multiple, but 50% is a lot better than 10%.

Dataset & Methodology

All data has been taken from Factset. As Forward Revenue Multiples for FY16 and FY17 are being used, the dataset includes only SaaS companies which have broker forecasts available. The two data points are:

  • EV15/FY16 Multiple = March 2015 Enterprise Values / FY16 Forward Revenue
  • EV16/FY17 Multiple = March 2016 Enterprise Values / FY17 Forward Revenue

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