Hot SaaS: A story of strong deal flow and favourable multiples

SaaS and Cloud Computing

Transactional activity in the global Software-as-a-Service (Saas) and Cloud Computing sector is gathering pace, underpinned by a global economic upswing that began in mid-2016.

Driven by the increased demand for enterprise applications, health information technology and cloud-based solutions (particularly around cyber-security and operational efficiencies), M&A transaction volumes in the sector have grown significantly in the last 12 months.

M&A summary

According to the latest Hampleton Partners SaaS & Cloud M&A market report, there were 269 completed deals across the sector in Q1 FY18, a 27% increase on Q1 FY17; four of those deals were valued at over $1Bn, which was twice as many as in the same period last year. The largest deal in the sector during Q1 FY18 was SAP’s $2.4Bn acquisition of sales performance management specialist Callidus Software. Two of the four deals were health-related SaaS transactions, with Swiss drug maker Roche acquiring Flatiron Health for $1.9Bn, and healthcare data analytics company Inovalon Holdings acquiring it provider Ability Network for $1.2Bn.

M&A activity in this sector is forecast to continue growing over the coming years, driven primarily by private equity’s continued appetite for deals in this space. Private Equity (PE) firms will continue acquiring sustainable SaaS companies with strong management teams and recurring revenues via platform and bolt-on acquisitions. Historically, PE firms have paid favourable multiples for SaaS companies; according to Capital IQ, the median revenue multiples paid by PE firms were 2.5x in FY13, 2.9x in FY14, 3.3x in FY15, 3.8x in FY16 and 3.1x in FY18.

Also, the strategic expansion of traditional and non-traditional technology consolidators will drive M&A growth in the sector. With strict IPO criteria, software consolidators are now seeking growth-focussed M&A deals to expand product lines, customer bases and geographic reach. Large software players such as Oracle, Intel, Cisco, Microsoft and Salesforce will continue acquiring SaaS companies to improve cross-selling opportunities and strengthen their positions in their particular sub-sectors.

What are we seeing?

At PEM Corporate Finance, we have witnessed first-hand these trends in SaaS sector M&A activity. We recently completed the sale of eSight Energy Group Limited, a leading developer and supplier of energy management software, to BID Equity, a German private equity firm. BID Equity’s rationale for the acquisition was in line with their cross-border technology ‘buy & build’ strategy, which included, in 2016, the acquisition of Z-Wave Europe GmbH, a leading developer of IoT devices in Germany and Europe.


Philip Olagunju

Assistant Director
I have over 10 years’ experience in corporate finance advisory services, with a focus on mid-market entrepreneurial businesses. I advise shareholders on the ultimate disposal of their business and assist acquirers with the identification and ultimate purchase of suitable acquisition targets. I also deliver exit strategy reviews and help to advise management teams on management buy outs.

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