Corum claim to be the world’s leading seller of private software, IT and related companies. They produce fascinating summaries of the valuation ratios of public software companies. Their review of 2012 is worth revisiting to calibrate the big picture of this huge market. They divide the market into six broad categories: Horizontal, Vertical, Consumer, Infrastructure, Internet, and IT Services. Of course they consolidate all of this into an Aggregate Valuation.
- The Aggregate Valuation suggests the average valuation to sales ratio = 1.78 at the end of last year. In other words a company with sales of $200m was valued on the stock market at 1.78 x $200m = $356m.
- Horizontal Application Software market includes companies like NetSuite, Salesforce, Microsoft.
It includes social media, human resources, supply chain management.
Valuation average = 2.61 times sales. Subset valuation figures are also fascinating:
- Supply Chain Management = 4.89 times sales
- Communications = 1.42 times sales
- ERP = 2.36 times sales
- CRM = 4.17 times sales
- Business Intelligence = 2.39 times sales
- Content Management = 2.85 times sales
- Human Resources = 2.15 times sales
- Projected growth rates are double on-premise software.
- On-premise solutions still represent the bulk of IT expenses with a ratio of 9 times that of SaaS solutions, forecast to drop to 6 times by 2015.
- Overall public SaaS companies attract a valuation of 4.4 times and M&A deals were on average getting 3.6 times sales. However a note of caution to small private companies aspiring to that value: – if your growth drops your value could drop to 1.4 times sales. Guideline graph with Corum’s report indicates growth needs to be 30% plus to get the higher 3 times type valuation.
Valuation average = 2.11 times sales. Subset figures reveal:
- Energy = 2.25 times sales
- Healthcare = 2.82 times sales
- Financial Services = 3.09 times sales
Average valuation = 1.29 sales
Average valuation = 1.89 times sales.
Average valuation = 2.27 times sales
The subset reveals a wide range of valuation multiples
Virtualization = 3.65 times sales
Storage = 0.98 times sales
As a side note, an analysis of the Thomson Reuters 2012 M&A Tables by The Portfolio Partnership reveals around 530 transactions took place with an average value of $80m.
Comparables can be useful guides to valuations but for a more detailed discussion on the issues affecting value please see our posts on The Saleability Test and Checklist For Maximizing Exit Proceeds.
If you own a software company and want to discuss your value, scaling plans or exit options please reach out for a confidential chat.