SaaS M&A Transactions Q2 2011

The following article is from Software Equity Group’s 2011 Q2 Software Equity Industry Report.  A complimentary copy of the quarterly report can be downloaded here: http://www.softwareequity.com/research_reports.aspx

In 2Q11, 45 SaaS companies were acquired, compared to 39 in 1Q11 and 26 SaaS acquisitions in 4Q10.  The growing number of SaaS acquisitions is consistent with the results of our 2011 Software Company Buyer Survey, indicating SaaS providers had finally become an important target for acquirers, as well an array of recent IT spending surveys showing SaaS was gaining increased acceptance among enterprise CIOs.  As a result, SaaS acquisitions accounted for 11.3% of all software acquisitions in 2Q11, up from 9.9% in 1Q11 (Figure 37).  Just two years ago, SaaS acquisitions accounted for only 2.6% of all software M&A transactions.

The accelerating pace of SaaS acquisitions, which generally garner a higher median EV/Revenue than their on-premise counterparts, has contributed in part to the historic highs we are seeing in the SaaS median exit multiple. While the number of acquisitions has grown, SaaS exits still comprise a relatively small percentage of all software M&A activity each quarter, which is why we track the median exit value of SaaS M&A on a TTM basis.  As of 2Q11, the TTM median exit EV/Revenue for public SaaS companies was 4.2x.

Six of the SaaS companies exiting in Q2 were members of one of the earliest and most popular SaaS categories, CRM and Marketing.  Thus far in 2011, there have been eleven SaaS deals in this category, with a good number focused on socially enabled CRM solutions which are currently in high demand by buyers. That may give many of the remaining SaaS based, privately held CRM and Marketing players good reason to reevaluate their exit timing assumptions.

There were four SaaS transactions in the Storage & Systems Management category, spurred on by buyers’ continuing emphasis on cloud infrastructure and a concomitant requirement for enhanced solutions for virtualization, systems management and integration.

Of the 45 SaaS acquisitions in 2Q11, six reported EV/Revenue multiples, and all but one of these exceeded the median software EV/Revenue multiple of 2.7x.  The highest multiple was the 9.3x TTM revenue multiple paid by Fiserv for CashEdge in an effort to expand its digital footprint.  Other SaaS transactions with EV/Revenue multiples above the software median were DealerTrack’s acquisition of eCarList (6.5x TTM revenue); SuccessFactors acquisition of Plateau Systems (4.2x TTM revenue); Experian’s acquisition of Medical Present Value (4.1x TTM revenue); and SDC Software’s acquisition of SUPERAnitSpyware (3.4x TTM revenue).  Additional details on 2Q11’s SaaS M&A transactions can be found in Appendix E of our quarterly report which can be downloaded here: http://www.softwareequity.com/research_quarterly_reports.aspx

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