The SEG SaaS Index is a list of publicly traded companies that they have determined to be SaaS businesses (i.e., they primarily offer solutions via the cloud and may have a subscription or transaction-based pricing model).
Q2 posted 580 SaaS M&A transactions and amounted to one of the most active quarters on record.
Here are four highlight updates from the 2022 Q2 Report.
I) Deal Volume
With the addition of 580 SaaS M&A deals in Q2, just shy of Q1’s 616 deals, the first half of 2022 posted the highest deal volume on record and was up 58% over the first half of 2021.
Given the macro uncertainty and the unprecedented transaction volume in 1H22, we estimate M&A deal
volume will slow down in the second half of 2022. However, we anticipate deal volume will increase YOY as demand for SaaS companies remains high among cash-rich private equity investors (who make up 60%+ of the market) and strategic buyers looking to plug product gaps and enter new markets.
II) Median EV/TTM Revenue Multiple
2Q22’s median 6.4x EV/Revenue multiple dropped 16.9% from 1Q22, yet only declined 4.5% YOY. Notably, M&A multiples are holding up relatively strong compared to multiples of publicly-traded SaaS companies (53.0% YOY decline vs. 4.5%).
The relative stability of M&A multiples speaks to strong demand (and competition in M&A processes) for high quality (mission critical, strong revenue growth, solid gross retention, profitability, or near-term path to profitability) among both strategic and private equity buyers. Private equity buyers, in particular, can look beyond near-term changes in investor sentiment and leverage their longer-term investment time horizon when evaluating a business and its long-term market and financial prospects.
III) Target Market Focus
Targets with a vertical-market focus made up approximately 34% of all SaaS deals in 2Q22. This finding deviates slightly from the typical 60/40 split between horizontal and vertical in previous quarters.
Healthcare continues to lead the pack in terms of deal volume. Noteworthy deals include the acquisitions of Change Healthcare (certain assets) by TPG Capital ($2.2B), MEDIFOX DAN by
ResMed ($1B), and Prescribe Wellness by Transaction Data Systems ($125M).
IV) Buyer Backing
Private equity-driven deals continue to dominate SaaS M&A deal volume in 2Q22. PE investors have raised record amounts of capital, serving as a catalyst for their consistent activity.
Historically, past quarters reflected a more even balance of private equity and strategic deals.