SaaS valuations exploded over the past 5 years, reaching an index of more than 600 points, before falling

dramatically over 2021-2022

SaaS Index, 01.01.2015=100 Comment

No. of companies Index • Index of SaaS companies has been slowly

growing in the 2015-2020 period driven by
700 300 the expanding valuation multiples, as well as
by rapid growth of the companies.
600 • After the unprecedented monetary and fiscal
250
stimulus and COVID digitalization tailwinds,

No. of companies in the Index

the index jumped in 2020 to over 600 points
500 by early 2021.
200
• Rich valuations have driven the wave of
400 IPOs, with multiple SaaS companies raising
Index

150 capital at peak valuations.

300 • After the investor sentiment changed,

interest rates grew and profitability came
100 back to focus, investors rushed to sell SaaS
200 Peak IPO activity at IPO market freeze companies, especially the ones with no
the top of the bubble profits.
50
100

0 0

Note: equal-weight index; 01.01.2015=100; IPO date=100 for companies that went public after 01.01.2015

Source: S&P Capital IQ 3

SaaS revenue multiples almost doubled during 2020, as investors poured money into software

Median EV/Revenue multiple, 2015-2022 Comment

1st and 3rd Quartile Median • Revenue multiples have been growing
slowly between 2015-2019, reaching a
35.0x median of 13.6x before the COVID drop.

• Market drop in March 2020 was short lived,

30.0x with the multiples quickly recovering.

• Many SaaS companies went public during

25.0x the peak of the valuations, with the 25%
highest valued companies trading at above
30x Revenue.
19.4x
20.0x • The valuation multiples reached their peak
and plateaued for a period of time in
January-October 2021.
15.0x 13.6x
• The highest multiple recorded in our sample
was Asana, closing at 89.0x LTM Revenue
10.0x in November 2021.
9.8x 6.7x
• After Federal Reserve started to raise
5.0x interest rates and growth decelerated, the
valuations dropped significantly.

0.0x • By December 2022, multiples reached a

2015 2016 2017 2018 2019 2020 2021 2022 plateau at around 6.7x.

Source: S&P Capital IQ 4

SaaS revenue growth rates jumped during the pandemic, but now seem to be coming back to the long-term trendline

Median YoY quarterly revenue growth, % Comment

40%
Median • SaaS growth rates have been slowly
decelerating over the past eight years, as
+11pp many companies reached scale.
35%
36%
35% • By Q2 2020, the median growth rate of
34% 33% 34% 34% 33%
32%
33% SaaS business declined to 23% YoY.
30% 32% 32%
31% 31%
30% 30% 30% 30%
29% 29%
30% 29% 29% 29%
• Pandemic provided a temporarily relief,
29%
28% 28% pulling forward the demand for software and
25%
26%
accelerating the growth by 11pp.
25%
23% 23% • After peaking in Q2 2021, the growth rates
23%
20% are slowly returning to the long-term
Pre-COVID growth trendline and may even overshoot to the
rate trendline downside in case of a major recession.
15%

10%

5%

0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2022 2022 2022

Source: S&P Capital IQ

Profitability remains a challenge for SaaS companies, with the median margins in our sample well below zero

Median quarterly margin, % Comment

Net Income margin EBITDA margin • Over the 2015-2022 period, a median SaaS
company lost money on both Net Income
4%
and EBITDA margin basis.
2% • Following the margin increase in 2016-2019,
SaaS margins deteriorated again as the
0%
companies invested in growth aggressively.
-2%
• While many companies report positive FCF
margins, it commonly includes the add-back
-4%
of stock-based compensation.
-6%

-8%

-10%

-12%

-14%

-16%

-18%
2015 2016 2017 2018 2019 2020 2021 2022

Source: S&P Capital IQ 6

Rule of 40 metric for SaaS companies have been slowly declining over the past eight years

Rule of 40, % Comment

• Rule of 40 for a median SaaS company,

% above 40 Median calculated as sum of revenue growth and
35%
33% 33% 33%
100% EBITDA margin, has been slowly declining
31% 31%31% 31% since 2015.
31%30%31%
30%30%
30% 29% 30%30% 30% 90%
30% 28% 29% 29% • The median Rule of 40 metric declined from
27% 28%
27% 80% around 30% in 2015 to around 20% in 2022.
26% 25%
25% 70%
• Only 18% of the companies in our index
21% 22% 22% passed the Rule of 40 test.
21% 21%
20% 60%
20%
50%
15%
40%

10% 30%

20%
5%
10%

0% 0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2015201520152015201620162016201620172017201720172018201820182018201920192019201920202020202020202021202120212021202220222022

Source: S&P Capital IQ 7

SaaS companies seem to be sacrificing 3pp of margin for each extra percentage point in revenue growth

Profit margin vs. Revenue growth, % Comments

80% • Among 73 companies in our sample, only 13

stayed above Rule of 40 as of Q3 2022.

• The companies comfortably above Rule of

40 included Adobe, Descartes and
EngageSmart.
60%
• Rule of 40 implies a one-to-one tradeoff
between a percentage point of revenue
Revenue growth

growth and margin.

• Actual data shows SaaS companies actually

40%
sacrifice around 3pp of margin for 1pp of
revenue growth.

20%

0%
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%
Profit margin

Source: S&P Capital IQ

A 10-point improvement in Rule of 40 metric is generally corresponding to a 1.0x revenue multiple growth

Revenue growth vs Profit margin, % Comments

16.0x • Rule of 40 remains a good predictor of a

company’s valuation multiples.
14.0x • As of 31.12.2022, a 10% increase in Rule of
40 metric added 1.0x to the Revenue
multiple.
12.0x
• A company with a zero Rule of 40 metric is
expected to trade at around 5.0x Revenue.
10.0x
Revenue multiple

8.0x

6.0x

4.0x

2.0x

0.0x
-40% -20% 0% 20% 40% 60% 80%
Rule of 40

Source: S&P Capital IQ 9

Over the past eight years, SaaS companies have had median EV/Revenue of 5.2x and EV/EBITDA of 21.4x

Multiple (2015-2022) Sample (n) Median deal size 1st quartile Median 3rd quartile

EV/Revenue 327 $81M 2.9x 5.2x 9.7x

EV/EBITDA 130 $105M 12.4x 21.7x 39.4x

Search criteria:
Industry is Computer Software; Software as a Service (SaaS) targets selected
Deal value and multiples are disclosed
Period: 01.01.2015 – 31.12.2022
N=327 transactions

Source: Mergermarket 11
The EV/Revenue multiple for SaaS companies in the sample fluctuated within a range of 3.9x to 6.4x over the past 8 years

Median EV/Revenue multiple, 2015-2022 (n=327) Median EV/EBITDA multiple, 2015-2022 (n=130)

16.0x 1st and 3rd Quartile Median 100.0x 1st and 3rd Quartile Median

90.0x
14.0x
80.0x
12.0x
70.0x
10.0x
60.0x

8.0x 50.0x
6.4x
5.8x 5.6x 5.8x 5.7x 40.0x
6.0x
4.8x 29.1x
27.9x
3.9x 3.9x 30.0x 24.7x
4.0x 19.9x 20.6x
20.0x 16.7x
14.5x 14.7x
2.0x
10.0x

0.0x 0.0x
2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022

Source: Mergermarket 12
Deals above $50M have significantly higher valuations than smaller deals

Median EV/Revenue multiple by deal size, 2015-2022 Key findings

20.0x • The EV/Revenue multiple for acquired SaaS

1st and 3rd quart. Median companies tends to increase with the size of
the company.
18.0x
• The gap between the 1st and 3rd quartile of
16.0x the EV/Revenue multiple widens as the size
of the company increases.
14.0x
• Larger deals include strategic acquirors,
take-private transactions, yet the elevated
12.0x competition for such deals is also a major
factor.
10.0x
• The sample size for the “$0-5M" size
8.0x 7.1x category is smaller and the companies in
this group may have elevated multiples due
5.8x 6.1x 5.9x to lower absolute revenue size.
6.0x

4.0x 3.4x 3.4x

2.0x

0.0x
$0-5M $5-20M $20-50M $50-100M $100-500M $500+

Source: Mergermarket 13
The EV/Revenue multiple for SaaS companies is generally higher than for Non-SaaS, but the premium has decreased in the recent years

SaaS vs Non-SaaS software, EV/Revenue multiple Key findings

Premium SaaS Non-SaaS software • In the sample analyzed, SaaS companies

had consistently higher EV/Revenue ratios
7.0x than other types of software companies.
6.4x
• The “SaaS premium” stayed elevated in the
6.0x 5.8x 5.8x 5.7x 2015-2020 period, but has since declined.
5.6x
• We believe the increased competitiveness of
5.0x 4.8x investors for any software deals, as well as
5.3x ongoing transition to the cloud contributed to
4.7x its decline.
3.9x 3.9x
4.0x

3.6x
3.0x 3.3x 3.3x
3.1x
2.8x
2.5x
2.0x

1.0x 81% 76%

56% 61%
45% 39%
21% 21%
0.0x
2015 2016 2017 2018 2019 2020 2021 2022

Source: Mergermarket 14
US SaaS companies made up the majority of acquisitions in the sample and had the highest valuations and deal sizes

Country of Target Company Number of deals Median size, m USD Median EV/Revenue Median EV/EBITDA
USA 140 251 5.9x 31.0x

United Kingdom 42 34 4.7x 16.4x

Norway 23 27 5.4x 21.3x

Australia 14 59 5.5x 9.1x

Canada 12 80 6.0x 56.5x

France 14 45 3.0x 15.1x

Other 82 23 3.6x 15.4x

Total 327 81 5.2x 21.4x

Source: Mergermarket 15
What do we do? Our closed deals

We are an M&A advisor focusing on technology and growth

companies. We advise on company exits, acquisitions, and
larger capital raising deals.
Over the years, we have developed a distinctive operating
philosophy driven by a set of values.
• We believe the world would be better off with fewer (but
better quality) M&A deals done at the right moment for
the company and its owners.
• We start with a simple rule: we take the time to carefully
listen and understand each client’s unique set of needs
and goals.
• We then provide honest, insight-driven advice clearly
laying out all the options before you – including the one
to keep the status quo.

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marcin.majewski@aventis-advisors.com

filip.drazdou@aventis-advisors.com

david.runtag@aventis-advisors.com

17