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:
Q1 2021 M&A Valuation Trends
Transactions in Q1 showed record valuations. It is important to note this represents median valuations.
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.
The Impact of Private Equity
Continuing the trend from 2020, private equity firms accounted for the majority of M&A transactions:
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:
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.
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.