Firms & Funds

Valuations for private SaaS companies fall; public companies more lofty

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Software, private equity, Golub Capital, M&A, mergers
A student, who requested to be known only by surname Noh and his face not to be photographed due to security reasons, sits in front of a computer while demonstrating softwares during an interview with Reuters at War Room at The Korea University in Seoul, South Korea, June 16, 2016. Photo courtesy Reuters/Kim Hong-Ji TPX IMAGES OF THE DAY - RTX2H2XL
  • Public SaaS companies valued at about 6x revenue
  • Private SaaS companies valued at 4x revenue
  • Less frothy valuations boost pipeline for lender

With plans aired this past week by TPG Capital to buy a majority stake in Intel Corp’s computer-security business, McAfee, for $3.1 billion and Silver Lake-backed Dell Inc closing its $60 billion take-private of EMC, tech remains a big focus for private equity as 2016 starts wrapping up.

Deal makers shopping for acquisitions in the popular software-as-a-service category in tech may get better prices for private companies, however, rather than chasing publicly traded acquisition targets.

Currently, public SaaS companies are typically valued at about 6x revenue, according to the latest weighted-averaged SaaS Index compiled quarterly by Quest, a report from middle-market lender Golub Capital. That’s well above the private median multiple of about 4x revenue.

Valuations for both public and private SaaS companies fell from 2015 levels, however. This time last year, public SaaS companies traded at about 7x revenue, while privately held enterprises were valued at about 4.5x.

Peter Fair, managing director in Golub Capital’s Late Stage Lending Group, said the latest study marks the sixth since its launch in 2015 as a tool for chief financial officers and investors to view valuation trends in the SaaS space.

Overall, the lower valuations have helped Golub’s backlog because lenders prefer more solid fundamentals for borrowers.

“Compared to a year ago, our pipeline is a lot more robust,” Fair said. “Last year, frothy valuations diluted our value proposition.”

California, New York, Massachusetts and Texas remained the top four places for venture-backed SaaS deals, in line with last year. Washington State, with 3.4 percent of venture-backed deals, knocked out Colorado for the fifth slot.

Action Item: Read the latest Quest newsletter, http://insights.golubcapital.com/QuESTv6

A student, who asked to be known only by surname Noh and asked that his face not be photographed due to security reasons, sits in front of a computer while demonstrating software during an interview with Reuters at War Room at the Korea University in Seoul, South Korea, on June 16, 2016. Photo courtesy Reuters/Kim Hong-Ji