Latest SaaS Acquisitions Sold for More Than 7 Times Trailing 12-Month Revenue, Analysis Shows -- IBM, Oracle, SAP buying SaaS companies to gain market position; according to martinwolf M&A Advisors some of these deals will end up as bargains
San Ramon, California, April 10, 2012 -- A new analysis from martinwolf M&A Advisors comparing mergers and acquisitions in the SaaS sector to those in other IT sectors revealed that on average SaaS companies are selling for 3.19 times more than their counterparts in the other sectors. Other sectors analyzed included IT Services and Business Processing Outsourcing (BPO), IT Supply Chain and traditional Software.
The analysis shows that in the past six months companies in these other sectors sold on average for 2.39 times trailing 12-month revenue while SaaS companies acquired by software industry giants IBM, Oracle and SAP were sold on average for 7.63 times trailing 12-month revenue -- or more than 3.19 times more.
In fact, on the high end, SAP paid more than 12 times trailing 12-month revenue for SuccessFactors, a standout leader in SaaS-based human capital management solutions. SuccessFactors had revenue of $291 million in the 12 months prior to its purchase; SAP paid $3.5 billion.
Analysis of prices paid for key SaaS companies acquired in the past six months ranged from 3.42 to 12.05 times trailing 12-month revenue, while those in other IT sectors ranged from .4 to 3.68 times trailing 12-month revenue.
According to Marty Wolf, president and founder of martinwolf M&A Advisors, "On the outside, some people might think the prices being paid for SaaS companies are too high. Our belief is that IBM, Oracle and SAP can make these deals into bargains. These companies are smart buyers and they know how to integrate companies and leverage their existing infrastructures, including sales, to capitalize on their strengths.
"In the end, these software leaders are paying for the future revenue stream, not the past," said Wolf. "So, if they can buy an asset for 7 times trailing 12-month revenue, and increase the sales 10 times in a few years time, they effectively make the purchase less than 1 times future revenue. Clearly they go into these deals knowing exactly how they will grow value."
Wolf cited a case in point for the 1990s. In 1996, IBM purchased Tivoli Systems for $743 million, which was about 10 times trailing 12-month revenue. At the time, many analysts opined that IBM had grossly overpaid for the asset. But within a year, IBM was able to leverage Tivoli into almost a billion dollars in revenue.
"So in the end, did IBM pay 10 times 12-month trailing revenue, or less than 1 time 12-month future revenue for Tivoli?, said Wolf.
OTHER IT SECTORS
Buyer (Seller) -- EV/Revenue
1. Perficient Inc. (Pointbridge Solutions, LLC) -- 1.29
2. Salient Federal Solutions, Inc. (ATS Corporation - (AMEX:ATSC) --0.84
3. ICF Intn'l (IronWorks) -- 1.83
4. Advent International Corp. (TransUnion) -- 3.05
5. Avnet (Pinnacle)-- 0.72
6. Presidio (INX) -- 0.40
7. Tyler (Windsor) -- 1.36
8. TA Assoc (2nd Story) -- 3.68
9. Insight venture (Quest Software) -- 2.27
10. Permira Advisers Ltd.+ Technology Crossover Ventures (Genesys Tel Labs, Inc.) -- 3.00
Average multiple 2.39
Buyer (Seller) -- EV/Revenue
1. Blackbaud Inc. (Convio, Inc.) -- 3.42
2. IBM (DemandTec) 4.79
3. Oracle (Taleo) -- 5.72
4. Oracle (RightNow Technologies) -- 7.04
5. SAP (SuccessFactors) -- 12.05
6. SAP (Jobs2Web) -- 11.11
Average multiple 7.63
EV/Revenue = enterprise value to trailing 12 months revenue
For a complete analysis go to http://www.martinwolf.com/Websites/martinwolf/images/SaaS_Companies_Realizing_High_Valuations_4-12.pdf
martinwolf is the world's leading middle market IT M&A advisory. Since 1997, the firm has completed more than 100 transactions in six countries. Its knowledge and experience with IT outsourcing and managed services combined with its disciplined approach, which includes a proprietary, proven, step-by-step work plan customized for each client, has produced one of the highest transaction completion rates in the industry. martinwolf is a member of the Merrill Lynch PS Referral Network and is an exclusive strategic partner to ICICI Bank, India's leading private bank, for acquiring U.S. IT companies. Martinwolf is a member of the FINRA and SIPC. For more information, visit http://www.martinwolf.com.