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SaaS Valuations & Revenue Growth

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Closer Look at SaaS Public Market and M&A Valuations vs. Revenue Growth

Closer Look at SaaS Public Market and M&A Valuations vs. Revenue Growth


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  • 1. SaaS Company Revenue Growth & Market Valuation May2014
  • 2. About SEG • Twenty-one year, exclusive focus on software advisory services to lower middle market (i.e., client revenue $5M - $50M) representing companies seeking: • Strategic exit • Growth capital • Buyout • Inorganic growth via acquisition • Fairness opinions and valuations • Board advisory services • Clients span virtually every technology, product category, delivery model and vertical market • Global presence providing advice and guidance to more than 2,000 private and public companies throughout US, Canada, Europe, Asia-Pacific, Africa and Israel • Strong cross-functional team leveraging transaction, operating, legal and engineering experience • Unparalleled software industry reputation, track record and industry research • Highly referenceable base of past clients and buyers / investors Focus on Advice Multi-service Multi- Industry Focus on Software Advisory Boutiques Bulge Bracket Firms IPO Boutiques Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
  • 3. Recent SEG Transactions has received a growth equity investment from 2013 Transactions Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL Recent Transaction
  • 4. SaaS PUBLIC COMPANY MARKET UPDATE
  • 5. SEG SaaS Index: Key Public Company Performance Metrics Measure 4Q12 1Q13 2Q13 3Q13 4Q13 EV/Revenue 4.9x 5.5x 6.2x 7.3x 8.3x EV/EBITDA 38.2x 35.4x 30.2x 39.8x 57.0x EV/Earnings 40.2x 63.9x 106.1x 125.3x 81.9x Gross Profit Margin 70.9% 70.8% 70.8% 70.3% 70.7% EBITDA Margin 5.9% 3.2% 1.4% 1.2% 0.2% Net Income Margin -1.6% -3.9% -4.4% -4.9% -5.0% TTM Revenue Growth 26.8% 25.3% 25.0% 27.3% 26.1% TTM Total Revenue ($M) $117.5 $127.7 $143.1 $163.8 $173.4 TTM EBITDA Growth 5.9% 3.2% 1.4% 1.2% 0.2% TTM Total EBITDA ($M) $5.6 $4.0 $2.6 $1.2 $0.1 Cash & Eq ($M) $67.4 $75.3 $76.2 $92.0 $107.7 Current Ratio 1.6 1.9 1.5 2.3 2.6 Debt / Equity Ratio 6.7% 6.5% 7.1% 10.3% 11.4% SEG - SaaS: Median Metrics • The SEG SaaS Index tracks public companies that primarily offer hosted, on-demand software under a subscription and/or transaction based pricing model • The SEG SaaS Index is currently comprised of 43 public pure-play SaaS companies* • Revenue growth is highly correlated with valuation multiples Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
  • 6. The SEG SaaS Index: Public Company Market Multiples 7.5x 3.3x 2.6x 3.6x 4.5x 5.0x 7.3x 2007 2008 2009 2010 2011 2012 2013 EV/RevenueMultiple 65.2x 36.9x 31.4x 32.2x 35.2x 35.0x 48.2x 2007 2008 2009 2010 2011 2012 2013 EV/EBITDAMultiple Median EV/Revenue - Annual Median EV/EBITDA - Annual • After plunging to 2.6x in 2009, the median EV/Revenue of public SaaS companies has made a stunning comeback, climbing steadily for four consecutive years to finish 2013 at a whopping 7.3x. • Compared to this 180% increase in the SEG SaaS Index median EV/Revenue multiple, the median multiple of public on-premise software companies grew 106%. At the close of 4Q13, the median EV/Revenue multiple of public SaaS companies is more than twice that of their on-premise software counterparts.(7.3x vs. 3.1x). • The stunning growth in median EV/Revenue of public SaaS companies reflects investors enthusiasm for 25%+ revenue growth, recurring revenue, immense market opportunities (enterprise and SMB), and an M&A feeding frenzy targeting rapidly growing SaaS providers. Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
  • 7. The SEG SaaS Index: Public Company Market Multiples 0.0x 2.5x 4.6x 6.9x 7.2x 7.7x 21.2x 0.0x 5.0x 10.0x 15.0x 20.0x 25.0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% <= 40% > 40% <= 50% > 50% MedianEV/Revenue TTM Revenue Growth 11.9x 5.3x 5.7x 6.5x 4.5x 0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x <= 0% > 0% <= 10% > 10% <= 20% > 20% <= 30% > 30% MedianEV/Revenue TTM EBITDA Margin EV/Rev Multiples vs. TTM EBITDA Margins – 4Q13EV/Rev Multiples vs. TTM Rev Growth Rates – 4Q13 • Throughout 2013, profitable SaaS companies were penalized with lower market multiples, as investors perceived profitability to have come at the expense of growth. • As proof, note the very strong correlation between the median TTM revenue growth rate and median EV/Revenue multiple of public SaaS companies. Public SaaS companies that grew TTM revenue below 10% received multiples significantly below their high growth peers. • Adjusting EV/Rev multiples to account for public to private liquidity discount* would reduce valuations for 0- 10% and 10%-20% growth companies to 1.9x and 3.5x, respectively * SEG uses industry standard 33% public to private liquidity discount Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
  • 8. SaaS M&A UPDATE
  • 9. SaaS M&A: Deal Volume 26 39 45 48 68 65 59 94 94 86 104 97 103 0% 5% 10% 15% 20% 25% 30% 0 20 40 60 80 100 120 SaaSM&ADealsasa%ofTotal SoftwareM&ADeals #ofSaaSM&ADeals SaaS M&A Deals SaaS as % of Software 50 105 200 312 390 0 50 100 150 200 250 300 350 400 450 2009 2010 2011 2012 2013 #ofSaaSM&ADeals SaaS M&A Deals SaaS M&A Volume - AnnualSaaS M&A Volume - Quarterly • There were 103 SaaS M&A transactions in 4Q13, on par with 2Q13’s 104 SaaS M&A transactions. SaaS M&A transaction volumes in 2Q13, 3Q13, and 4Q13 were each greater than any prior quarter on record. • Average quarterly SaaS M&A transaction volume in 2013 was 680% higher than in 2009. • In 2013, there were 390 SaaS M&A transactions, a 25% increase over 2012’s 312 transactions SaaS acquisitions. Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
  • 10. Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL SaaS M&A: Exit Multiples 16 2.7x 3.2x 3.7x 4.1x 4.1x 2009 2010 2011 2012 2013 4.1x 4.0x 4.0x 4.3x 4.1x 4Q12 1Q13 2Q13 3Q13 4Q13 • The median exit multiple for all SaaS transactions on a TTM revenue basis remained relatively constant throughout 2013, except for a bump up in 3Q13 due to a number of lower multiple transactions in 3Q12 falling out of the TTM analysis. • The 4.1x median SaaS exit multiple for all of 2013 was 86% greater than the 2.2x median on-premise exit multiple for 2013. • As expected, SaaS M&A exit multiples are strongly correlated with TTM revenue growth Public Company SaaS Exits: Multiple vs. Revenue Growth Median SaaS EV/Rev Exit Multiples - Quarterly Median SaaS EV/Rev Exit Multiples - Annual ExactTarget, Inc. Responsys, Inc. Eloqua, Inc. Rightnow Technologies Hostopia.com Inc. Greenway Medical Technologies Kenexa Corp. Taleo Corp. Success Factors Keynote Systems, Inc. Pironet NDH AG Ariba Inc. DemandTec Omniture Inc. Market Leader, Inc. Convio, Inc. Convio, Inc. Kintera, Inc. 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x 7.0x 8.0x 9.0x 10.0x 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% TTM Revenue Growth EV/RevMultiple* * 33% public to private liquidity discount applied
  • 11. • The 390 SaaS acquisitions in 2013 were spread across a wide number of product categories and verticals. • CRM and Marketing once again led all product categories in acquisition activity, accounting for 15.1% of deals in 2013, slightly lower than 17% in 2012. • SaaS mega-deals in the CRM/Marketing cateagory, including Oracle’s acquisition of Responsys, Adobe’s acquisition of Neolane, and Salesforce’s acquisition of ExactTarget, helped drive M&A activity in the product category • CRM/Marketing buyers are seeking targets that can help garner a greater share of IT capital in spending on online marketing technology. According to Gartner, by 2017 the CMO will purchase more IT than the CIO. • The Talent & Workforce Mgmt product category claimed only 6.4% of SaaS transactions in 2013, compared to 12% in 2012. After a three-year period of consolidation by the large HR software providers, the M&A window for many smaller HR SaaS providers is rapidly closing. SaaS M&A: Deal Volume By Product Category CRM, Marketing & Sales 15.1% Data Mgmt & Integration 1.8% Dev. Tools & IT Asset Mgmt 1.0% eCommerce 4.1% Engineering, PLM & CAD 1.8% ERP 0.8% HR & Workforce Mgmt 6.4% Messaging, Conferencing & Communications 6.2% Multimedia, Graphics & Communications 1.8% Network Performance Mgmt 0.5% Security 3.8% Systems Mgmt 7.7% Supply Chain Mgmt & Logistics 4.9% Automotive 1.5% Construction 1.0% Education 4.4% Financial Services 4.6% Healthcare 2.3% Hospitality 0.8% Insurance 2.1% Legal 0.5% Non-Profit 0.8% Other Verticals 3.8% Public Sector 0.5% Real Estate 4.1% Retail 2.8% Telcom 0.3% Accounting & Finance 2.3% Billing & Service Provisioning 1.3% BI, Risk & Compliance 6.7% Content & Document Mgmt 4.4% Verticals Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL
  • 12. My Experience has received a growth equity investment from Allen Cinzori, Managing Director, leads SEG’s M&A and growth capital advisory practice. Allen has advised on numerous domestic and international transactions. During his career with SEG, he has advised and led more than 50 middle market and lower-middle market transactions across the software and internet sectors. He holds an MBA degree with highest honors (Beta Gamma Sigma) from the University of Southern California's Marshall School of Business, and a Bachelor of Science in Engineering (Cum Laude) from California Polytechnic State University. Copyright © 2014 by SOFTWARE EQUITY GROUP, LLC, All Rights Reserved CONFIDENTIAL Select Transactions Led
  • 13. Contact Information acinzori@softwareequity.com www.softwareequity.com (858) 509-2800 The information contained in this Report is obtained from sources we believe to be reliable, but no representation or guarantee is made about the accuracy or completeness of such information, or the opinions expressed herein. Nothing in this Report is intended to be a recommendation of a specific security or company or intended to constitute an offer to buy or sell, or the solicitation of an offer to buy or sell, any security. Software Equity Group LLC may have an interest in one or more of the securities or companies discussed herein. Financial data provided by Capital IQ. This Report may not be reproduced in whole or in part without the expressed prior written authorization of Software Equity Group, L.L.C. Software Equity Group registers each Report with the U.S. Copyright Office and vigorously enforces its intellectual property rights.