This excerpt is from our complimentary Q2 2012 Software Industry Financial Report which can be downloaded here: http://www.softwareequity.com/research_reports.aspx
Sixteen of the seventeen product categories comprising the SEG Software Index saw their median EV/Revenue multiples decline YoY as a result of the deteriorating economic climate and market perturbation. The lone exception was the IT Conglomerates category, which managed to improve its median EV/Revenue multiple YoY, as investors sought safer investments in the face of increasing uncertainty. But it’s all relative.
Five of our software product categories achieved a median EV/Revenue multiple of 3.0x or higher in 2Q12. The Systems Management category posted a whopping EV/Revenue multiple of 5.9x, led by companies who are spearheading the cloud revolution, namely: SolarWinds (14.4x EV/Revenue), VMWare (9.7x), RedHat (8.5x) and Citrix Systems (5.9x). The Systems Management group has been strong for well over a year withEV/Revenue multiples ranging from 5.0x to 7.3x over the past four quarters.
A distant second was the Vertical – Finance category, which closed 2Q12 with a median EV/Revenue multiple of 3.7x, no doubt bolstered by the category’s strong EBITDA margins. The Healthcare category finished 2Q12 with a median EV/Revenue multiple of 3.3x.
Interestingly, the median EV/Revenue multiples of most software product categories were barely impacted by their TTM revenue growth rates (Figure 11). Vertical-Other, the product category with the highest TTM revenue growth rate in 2Q12 posted a median EV/Revenue multiple of 3.0x, while IT Conglomerates, the category with the lowest TTM revenue growth rate, closed 2Q12 with a median EV/Revenue multiple of 2.9x.
The Billing & Service Management product category experienced the largest YoY decline in market valuation. The category has been a perennial laggard and the majority of companies in the category are struggling to reinvent themselves. Even Synchronoss Technologies, which has been a category stand out over the past year, returned to earth and finished 2Q12 with median EV/Revenue multiple of 2.7x, down from 4.9x in 1Q12. Nevertheless, Synchronoss remains the category standout, providing best of class solutions to service providers struggling to manage and synchronize the barrage of mobile devices connecting to their networks.