SEG Q1 2021 SaaS M&A Update 00

The Software Equity Group (SEG) regularly publishes quantitative research on the software and SaaS market M&A activity.  It is always great information and clearly shows the trends in the industry.  While information providers like PitchBook and dealroom offer comprehensive data and analysis, they are paid services that cost thousands of dollars a year.  SEG offers their research for free.  In a few weeks SEG will publish their Q2 2021 updates.  To put 2021 in context, let’s take a look at their Q1 2021 M&A Update & SaaS Public Market Update.

SEG Q1 2021 Update

SEG publishes two major updates every quarter – one on the overall software market (on-premise & SaaS).  The other is the SEG SaaS Public Market Update.  The SEG SaaS Index contains dozens of publicly traded SaaS companies.  The SaaS only market has dramatically different performance than the overall market that also includes on-premise software.

Here are some highlights from the Q1 2021 M&A Update.  You can download the entire report here.

Q1 2021 Deal Volume

After being initially depressed by the pandemic in early 2020, overall M&A activity has rebounded very strongly:

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SEG Q1 2021 M&A Update

Transactions in Q1 showed record valuations.  It is important to note this represents median valuations.

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SEG Q1 2021 M&A Update

Q1 Average Company Age & Employee Count

Only 22% of the companies acquired in Q1 were less than four years old.  The vast majority, over 53%, were between 5 and 15 years old.  Well past the early adopter stage and well into the early majority and even late majority of the technology adoption life cycle.

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SEG Q1 2021 M&A Update

The Impact of Private Equity

Continuing the trend from 2020, private equity firms accounted for the majority of M&A transactions:

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SEG Q1 2021 M&A Update

SEG Q1 2021 SaaS Public Market Update

Here are some highlights from the SEG Q1 2021 SaaS Public Market Update.  You can download the entire report here

SaaS Q1 2021 Median Valuation Metrics

As the chart indicates, the companies included in the SEG SaaS Index demonstrated strong growth in key metrics such as EV/Revenue (ttm), EV/EBITDA (ttm), and Revenue Growth:

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SEG Q1 2021 SaaS Index Public Market Update
SEG Q1 2021 SaaS Index Public Market Update

SaaS Categories Valuation Performance

There are significant differences in SaaS valuations depending on the category a specific company is in.  The relative differences vary over time.  Currently, DevOps/IT Management command the highest valuations while security and vertically focused apps command the lowest.

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SEG Q1 2021 SaaS Index Public Market Update

Summary

The Software Equity Group continues to publish excellent research on software related M&A activity.  For the overall market, Enterprise Value/Revenue (ttm) multiples have reached an all-time high.  SaaS companies, like those represented in the SEG SaaS Index have reached even higher valuations.  Like in 2020, private equity firms account for more than half of all software related M&A transactions.


Also published on Medium.

By John Mecke

John is a 25 year veteran of the enterprise technology market. He has led six global product management organizations for three public companies and three private equity-backed firms. He played a key role in delivering a $115 million dividend for his private equity backers – a 2.8x return in less than three years. He has led five acquisitions for a total consideration of over $175 million. He has led eight divestitures for a total consideration of $24.5 million in cash. John regularly blogs about product management and mergers/acquisitions.