Multiples Valuations for SAAS, Cloud Computing Companies

Signal Hill Updata’s latest M&A Update report for multiples for SaaS and cloud computing software companies indicated the following:

For 2010 Signal Hill Updata’s proprietary database, which tracks SAAS, cloud computing software, infrastructure software, enterprise application software, financial technology, IT security, IT services and internet, showed a substantial increase in deal volume for 2010 compared to the past three years. This growth was driven largely by a consolidation that is occurring across the IT market, as traditional pure-play vendors begin to differentiatetheir offerings through acquisitions. The number of deals in 2010 grew over 42% compared to 2009, while total EV for announced deals ballooned to over $122 billion, an increase of 62% year-over-year. Median deal size climbed above $55 million, more than double the median for 2009 and its highest point since before 2007.  Median revenue multiples reached 1.8x, a significant increase over 2009 and just below 2007 levels.

In 2010 there were 32 deals in which multiples paid were greater than 5X the trailing twelve month period.  In addition, there were 7 deals in which multiples paid were greater than 10x trailing twelve month revenues.  Companies within the infrastructure sector saw the highest averages of multiples paid of just above a 4X multiple of trailing 12 months revenues.  Deals within this sector were spurred on by the interest in cloud computing, SaaS (software as a service) applications.

There were some notable strategic acquisition outliers in 2010 such as Dot Hill Corp’s (Nasdaq: HILL) acquisition of Cloverleaf Communications for 12X multiple of revenues.  Also Salesforce.com’s acquisition of Jigsaw for an 8.7X multiple of revenues.  When looking at non strategic acquisitions by private equity firms there were 10 transactions valued over $1 billion with the largest deal within the Internet sector being SSI Investments III Limted acquisition of Skillsoft PLC for 3.7X revenues.

Much of the growth within the Infrastructure sector was a result of significant increase in cloud computing, Saas companies.  2010 saw a doubling of the number of deals from 66 in 2009 to 112 with the average multiple of revenues being 4.1X

iMerge Advisors’ early indications for 2011 show continued robustness within the cloud computer, SaaS software sectors.  In itself, mandates by the federal government to have each of its agencies using cloud computing, Saas software solutions will propel the ongoing growth of the market.

If you are interested in learning more about the valuation of your SaaS or cloud computing company please do not hesitate to contact us.