Friday, May 2, 2014

SaaS Success IV -- Multiples

We learned in the last 30 days the impact of a key SaaS success factor -- the multiple of market cap to forward revenue.   

Pat Walravens at JMP Securities wrote an insightful report, called "Where Will SaaS Multiples Settle?"  There, he said:  "Many investors have been asking us to help them understand what historical multiples have been for high growth SaaS companies and where those multiples might settle down. We felt it would be helpful to chart the expansion and subsequent contraction in SaaS multiples over the past two years  [see above]. The bottom line is that the median enterprise value to full forward year revenue multiple for “high growth” SaaS companies expanded from about 5.5x in May 2012 to over 12.0x in February 2014, and then quickly reset back down to 6.9x over the last month or so." 

In the last 30 days, the multiples for this group have declined by 44%, even though the Dow hit an all-time high.  As a comparison, the Dow declined by 50% during the financial crisis of 2007-2008.

This should have a major impact on all late stage financings, since those deals are generally priced as a discount to IPO (the public markets).



Companion posts:  SaaS Success I -- EasySaaS Success II -- FocusLEUR,SaaS Success III -- Metrics and Growth vs Profitability (vs Dilution)

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