Clare Capital Blog

Sorting your Models from their SaaS and their CAC(k)

SaaS, or Software as a Service appears to be the new exciting kid on the block, quite often speaking a completely foreign language. Who is this kid… and what is ARPU, CAC and CMR?

Here at Clare Capital we have been doing financial modelling for several New Zealand SaaS companies (both public and private), during which, we have had a bit of a crash course in the world that is SaaS and would like to pass on some of what we have learnt.

[For those that live and breathe SaaS, feel free to point out anything we misrepresent, for everyone else feel free to contact us for more information].

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NZ Tech company’s EV/Revenue multiples

As a sequel to last week’s post about What is the right EV/Revenue multiple? We thought we would follow this up with the same EV/Revenue & ACMR graph – but relating to the six NZX-listed Tech companies. This also coincides with the release of Wynyard Group’s and SLI Systems’ financial statements earlier this week.

ACMR is Annualised Committed Monthly Revenue – which is the most recent monthly revenues annualised. While the size of the bubble represents the company’s overall Enterprise Value.

Chart 1 – NZ Tech companies

1

What is the right EV/Revenue multiple?

This is a question often asked, and is a difficult one to answer. To help visualise the relationship between Enterprise Value (EV), Revenue (ACMR) and the commonly used multiple, EV/Revenue we have created the following charts comparing online companies.

NB: ACMR = Annualised Committed Monthly Revenue, which is the most recent monthly revenues annualised.

Understanding the charts:

Along with each company’s position on the chart representing EV/Revenue multiple in relation to Revenue, the size of the bubble represents the company’s overall EV.

Chart 1 – Low to Mid range ACMR companies

Chart 1

Chart 2 – High ACMR companies

Chart 2

 

Directories & Private Equity

Print-form directories have historically been a key cornerstone part of telecommunication businesses worldwide. This is changing, and what is occurring is a perfect example of Disruptive Innovation usurping a Sustaining Business Model.

History will show that the sale of Yellow Pages to a US-based private equity firm for NZD $2.24 billion was timed to near to perfection. At the time of sale in 2007, print directories were still a cornerstone aspect of telecommunication businesses. The Yellow Pages in particular had experienced constant revenue growth prior to the sale. And it’s also not hard to understand this, most people remember getting their White and Yellow pages in the late 1990s and early 2000s – and actually using them. Supplementing this, it was before the Global Financial Crisis, a period of cheap capital, in particular for private equity firms.

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Yellow Pages vs Trade Me

Following the 70% sale of the Sensis directories business from Telstra (Australia) to a US based private equity firm, Platinum Equity for A$454 million – blog post to come later – we thought we would illustrate the significant differences between NZ’s largest directories business vs NZ’s largest online auction/e-commerce website.

The following two graphs highlights the compelling difference comparing Yellow Pages (a largely print-based business) to Trade Me (a 100% online business). The results below show the impact technology has had on each company over the course of the last seven years:

Yellow Pages vs Trade Me - Revenue

Yellow Pages vs Trade Me - EBITDA

Note: the two data points (we are only showing the 2007 and 2013 numbers) for both Yellow Pages and Trade Me are from the financial years 2007 and 2013.

Market Valuations of Oil & Gas Players

Clare Capital uses the Enterprise Value/2P reserves ratio to give an indication of how the market is valuing a number of New Zealand and Australian comparators in the oil and gas exploration and production industry (as at 22nd September 2016). Companies with an EV less than NZ$20 million are excluded (such as Pan Pacific Petroleum).

market-valuations-of-oil-gas-players-chart

The graph above highlights three values of each company in the Australasian Oil & Gas (O&G) Industry:

  • Enterprise Value of the O&G company / Amount of latest reported 2P reserves [vertical axis]
  • Amount of latest reported 2P reserves [horizontal axis]
  • Enterprise Value of the O&G company [size of the bubble]

Green colouration denotes companies with New Zealand operations, while blue colouration represents Australian only operations. The closer a company is to the horizontal axis, the ‘cheaper’ its market valuation.

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Clare Capital advises NZX on the sale of NewsRoom to Sublime Group

Clare Capital was the financial adviser to NZX Limited on the sale of their online news business, NewsRoom to Sublime Group Limited after NZX conducted a strategic review of options for the business.

NewsRoom is a subscription-based online news service which sends unfiltered press releases, announcements and opinion material to paying subscribers. NewsRoom was established in 1996 and was acquired by NZX in 2007. It’s news feeds serve New Zealand’s top legal and accounting firms, large corporations, government departments, and parliamentary offices.

NewsRoom draws their material from three different sources; free content supplied by organisations and individuals, purchasing content from specialist providers and a designated in-house NewsRoom team creating content on key political stories. Subscribers receive their information via NewsMail (email), intranet feeds and website feeds.

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Clare Capital’s Thoughts on Xero’s Valuation

We produced a Thought Piece on our take on Xero’s valuation at the beginning of October 2013, before the US$150 million capital raise and when the share price was trading at $19.00. Three months later the share price is now at $42.00.

The Executive Summary of the Thought Piece is highlighted in the bullet points below:

  • Xero is a high-growth technology company and not a Ponzi scheme.
  • Losses are fine as long as value is being created.
  • However – from a fundamental valuation perspective Xero is a challenge. First – there are a wide range of future potential growth scenarios. Second – we don’t know when Xero will move to being cash flow positive. From patient for profit and impatient for growth – to the reverse.

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Clare Capital advises MetOcean on sale to MetService

Clare Capital was the financial adviser to MetOcean on their partial sale to MetService.

MetService, the nation’s state-owned weather forecaster, paid $3 million for a 49 per cent stake in privately owned New Zealand oceanographic consultancy MetOcean Solutions, giving it a foothold in a market worth more than $10 million.

The purchase will allow Wellington-based MetService to expand its research capability and add customised oceanographic forecasting and consultancy expertise to its global offering. For MetOcean, the tie up enables it to expand internationally with an established partner.

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The what and why Of EBIT and EBITDA

One of the common questions we get asked is why does the term EBIT or EBITDA get used so frequently in valuation work?

EBIT stands for Earnings Before Interest and Taxes (EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortisation).

EBIT is sales less expenses (including depreciation) adding back any interest paid and subtracting any interest received.  The only change to EBITDA is that depreciation and amortisation are added back.

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