Software industry public stock market and M&A valuations reached record peaks yet again in 2019. This was led by investor and buyer interest in publicly traded SaaS companies (8.2x EV/Revenue) and SaaS M&A targets (4.9x EV/Revenue). M&A deal activity also reached record levels in 2019, as SaaS M&A volume grew 27% during the year.
Here is a brief overview of key SEG SaaS Index trends in 2019:
- The SEG SaaS Index grew in 2019 as new publicly traded companies were added to the Index. Select companies include Slack, Fastly, CrowdStrike, Livongo Health, and Zoom.
- The SaaS Index also grew in revenue as it reached a median TTM revenue of $473.3M, a 31.2% YOY increase. The median EV/Revenue multiple reached near-record levels, posting 8.2x in 2019.
- Alongside a strong continued economic outlook, the fastest growing SaaS companies were favored most in the market as they focused on revenue growth and market share over profitability. Overall, the SaaS Index maintained a high gross profit margin (70.4%) and positive free cash flow (10.5%), while EBITDA margins modestly declined (-3.0%) in 4Q19.
- The Rule of 40% is strongly correlated to revenue multiples as companies greater than 40% posted a median EV/Revenue multiple of 11.5x, significantly higher than the Index median.
- BI & Analytics led the Index for revenue growth, posting a median of 31.3% in 4Q19. Select companies driving revenue growth in this category include Alteryx (72.7%), Cloudera (63.8%), and Elastic (61.8%).
- Communications & Collaboration outperformed the Index median for revenue multiples, posting a median of 12.3x EV/Revenue in 4Q19. The category includes Zoom (33.4x EV/Revenue), Slack (19.9x EV/Revenue), and Smartsheet (17.3x EV/Revenue).
Kris Beible highlights some key takeaways from the report.
To read the full SEG click here: https://softwareequity.com/