This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here: http://www.softwareequity.com/research_reports.aspx
At the close of 2Q12, the median EV/Revenue multiple of public companies in our SEG Software Index was 2.5x, slightly lower than 1Q12’s 2.7x. The median EV/Revenue multiple of the SEG Software Index has now been at or above 2.0x for eleven consecutive quarters (Figure 7).
The second quarter’s market downturn had an especially adverse impact on smaller public software company valuations (Figure 8). As testament, in 2Q12, the median EV/Revenue multiple of SEG Software Index companies with TTM revenues between $100 million and $200 million plunged to 2.1x from 2.7x the prior quarter. Only one year ago, this group achieved a median EV/Revenue of 3.8x.
Size (i.e., annual revenue) wasn’t the only important determinant of a public software company’s EV/Revenue multiple. EBITDA margins clearly played a part in Q2’s public software company market valuations. Public software companies with 40% or higher EBITDA margins were awarded with a median EV/Revenue multiple of 3.9x, nearly two times the 2.0x multiple of those with EBITDA margins below 10% (Figure 9).