Corum’s Latest Software Valuations

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.

Conclusions

1. 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.
2. 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
3. Specifically SaaS related companies were analysed and some insightful comments were made by Ward Carter, Chairman:
• 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.
4. Vertical Application Software market includes Autodesk, Parametric, Harris, Lockheed, Advent, OpenTable.
   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
5. Consumer Application Software includes Electronic Arts, Adobe
   Average valuation = 1.29 sales
6. Internet Software includes infrastructure companies like Akamai and Juniper Networks as well as pure play companies like Amazon and Google.
   Average valuation = 1.89 times sales.
7. Infrastructure Software includes BluePhoenix Solutions, Tibco, BMC and CA.
   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
8. Finally the IT Services sector produces a low overall average at 0.5 times sales. It’s worth noting that Asian companies in the sector attracted multiples of 2.64 times sales.