As we round the corner on the first quarter of 2023, we thought it would be an appropriate time to check in and review Software Equity Group’s Annual Report.
According to SEG’s report, SaaS continues to be an attractive asset class for private equity and strategic buyers. M&A deal volume in 2022 surpassed 2,000 transactions for the first time, a 21% increase over 2021.
Private equity buyers with record amounts of dry powder drove volume and valuations, comprising nearly 60% of SaaS M&A deals, a record for annual activity, and accounted for some of the highest multiples in 2022.
Public market indices across the board struggled to overcome the tumultuous macroeconomic landscape of 2022. While multiples continued to decline from the unsustainable run-up in 2021 (14.7x), public SaaS companies in the SEG SaaS Index demonstrated operational resiliency. The median EV/Revenue multiple sat 15% higher than 2018’s pre-pandemic levels, which were considered healthy at the time. What’s more, recent indicators show inflation moderating and the potential easing of interest rate hikes, which should bode well for SaaS multiples going forward.
Here are 5 summary points to note:
- Private equity capital overhang and fierce strategic competition catalyzed SaaS M&A activity and buoyed EV/Revenue multiples
in 2022, despite broader macroeconomic turbulence.
- SaaS M&A deal volume remains near peak levels, reaching 2,157 deals in 2022 and growing 21% over 2021.
- The median EV/Revenue multiple for SaaS deals jumped to 5.6x in 4Q22, surpassing the median SEG SaaS Index public market multiple of 5.4x. Buyers and investors paying a premium for high-quality assets bolstered valuation multiples for SaaS M&A in 2022.
- Private equity-driven deals accounted for the highest percentage of transactions to date on an annual basis (59.5%) due to the record amount of capital raised demanding deployment to worthy assets.
- Noteworthy deals include Adobe’s acquisition of Figma ($20B), Vista Equity’s acquisition of Citrix ($16.5B), and ICE’s acquisition of Black Knight ($16B).
M.R. Rangaswami is the Co-Founder of Sandhill.com