Public Software as a Service (SaaS) M&A Deal Volume and Valuations

Last year at this time, after surveying the corp dev heads of public software, SaaS and Internet companies about their acquisition strategies in 2011, we reported a whopping 131% increase in respondents stating SaaS would be a “very important” acquisition prerequisite when assessing potential targets.  They were true to their word: 200 SaaS companies were acquired in 2011, up 91% from the 105 SaaS providers that exited in 2010.  By comparison, on-premise software M&A volume increased only 7% in 2011.

On a quarterly basis, SaaS M&A transactions ramped steadily, increasing from 39 in 1Q11 to 45 in the second quarter, then to 48 in 3Q11 and finally to 68 4Q11.  All told, SaaS acquisitions accounted for 17.0% of all software industry acquisitions in 4Q11, compared to only 4.5% of all deals just two years ago (Figure 54).

SaaS exit valuations are also ramping.  The median EV/Revenue exit multiple for SaaS providers in 2011 was 3.7x, up moderately from 3.2x in 2010 and 2.7x in 2009.  By comparison with the median 2.1x TTM EV/Revenue exit multiple of on-premise software companies in 2011, the SaaS 2011 exit multiple represents a 76% exit valuation premium (Figure 55).

SaaS exit valuations are also ramping.  The median EV/Revenue exit multiple for SaaS providers in 2011 was 3.7x, up moderately from 3.2x in 2010 and 2.7x in 2009.  By comparison with the median 2.1x TTM EV/Revenue exit multiple of on-premise software companies in 2011, the SaaS 2011 exit multiple represents a 76% exit valuation premium (Figure 55).


Ten SaaS acquisitions in 2011 had reported enterprise values greater than $100 million, including two billion dollar mega deals in Q4: SAP’s acquisition of SuccessFactors ($3.5 billion EV, 12.1x TTM revenue) and Oracles’ acquisition of Rightnow ($1.5 billion EV, 7.0x TTM revenue).  Other notable deals with enterprise values greater than $100 million were IBM’s acquisition of DemandTec ($427 million EV, 4.8x TTM revenue); SuccessFactors acquisition of Plateau Systems ($290 million EV, 4.2x TTM revenue);  Oracle’s acquisition of InQuira ($230 million EV, 4.0x TTM revenue); and Fiserv’s acquisition of CashEdge ($465 million EV, 9.3x TTM revenue). These large SaaS transactions underscore the transition of SaaS in buyers’ minds from “nice to have” to “have to have.”  Large public software companies have unquestionably taken note of growing enterprise adoption of SaaS applications, and the demonstrated preference by the huge but elusive SMB market for SaaS over on-premise software.

Among the discrete SaaS categories we track, CRM earned top honors in 2011, accounting for 17% of all SaaS M&A transactions (Figure 56).

Most notable were Oracle’s acquisition of Rightnow ($1.5 billion EV, 7.0X TTM Revenue); Adobe’s purchase of Demdex; NeuStar’s purchase of TARGUS ($650 million EV, 4.4x TTM Revenue); and Salesforce.com’s acquisition of Model Metrics ($58 million EV).

The HR & Workforce Management product category, in second place, accounted for 10% of all SaaS M&A transactions in 2011 and included SAP’s acquisition of SuccessFactors ($3.5 billion EV, 12.1x TTM Revenue), Callidus Software’s acquisition of Rapid Intake (transaction details undisclosed), SumTotal Systems’ acquisition of GeoLearning (transaction details undisclosed); and ADP’s acquisition of Asparity Decision (transaction details undisclosed).

With fully 46% of respondents to our 2012 Software Company Buyers Survey indicating that it was “very important” or “essential” their targets be “all or substantially SaaS/subscription based” we anticipate SaaS deal volumes and median exit multiples will continue to grow in 2012, most likely 10% to 25%, depending upon the economic climate and the level of enterprise IT spending on hosted solutions.

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