I regularly M&A and valuation trends in the SaaS industry. One of my go-to resources is the Software Equity Group’s free research. Their recent report 2Q23 Quarterly SaaS Report shows a rebound in the public market and strong M&A volume point to the durability of SaaS in the current markets. In this article, we discuss:
- SaaS M&A Deal Volume
- SaaS Valuations are Slowly Recovering
- There Are Significant Variations in SaaS Valuations Depending on Category
- Operating Expense & Profitability Trends
SaaS M&A Deal Volume
2022 was a banner year for SaaS M&A. As interest rates rose, SaaS M&A slowed dramatically in 2023:
SaaS Valuations are Slowly Recovering
SaaS Valuations, as measured by median Enterprise Value/Revenues multiples, peaked in August 2022. The median values have been slowly ticking up since then:
There Are Significant Variations in SaaS Valuations Depending on Category
SaaS valuations vary depending on the category and investor appetites. Currently, Security and DevOps are considered to be the most valuable. Conversely, Communications & Collaboration have the lowest valuations. It is interesting to note that at the height of the Pandemic, this was one of the most valuable categories.
Operating Expense & Profitability Trends
Most notably, the percentage of revenue allocated to sales and marketing has decreased in 2023:
Profitability margins have improved dramatically since1H2022:
Also published on Medium.