Software M&A Valuation by Size

…a rapidly growing smaller company will often deem an exit premature and spurn advances by a strategic acquirer, prompting the larger suitor to raise the bid.

This excerpt is from our complimentary Q3 2012 Software Industry Financial Report which can be downloaded here:  http://www.softwareequity.com/research_reports.aspx
Another key driver of exit multiples is size – of both buyer and seller.  As testament, buyers with TTM revenue greater than $200 million paid a median EV/Revenue multiple of 2.8x in 3Q12, while buyers with TTM revenue less than $200 million paid only 1.6x TTM revenue (Figure 31). Equally noteworthy: Sellers with less than $20 million TTM revenue received a median EV/Revenue multiple in Q3 of 3.9x from buyers with $200 million of revenue or more, while sellers with greater than $20 million TTM revenue were paid a median exit valuation of 2.7x.

Why? A rapidly growing smaller company will often deem an exit premature and spurn advances by a strategic acquirer, prompting the larger suitor to raise the bid. Case in point: GoInstant, a small but highly respected provider of enterprise social web browsing and collaboration solutions which allow customers, business partners, and colleagues to easily meet in online sessions, browse the web, and interact in real-time, as if seated side-by-side and was gobbled up for an estimated 15.0x TTM revenue by Salesforce.com.

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