Software as a Service (SaaS) M&A Deal Volume and Valuations

In 3Q11, 48 SaaS companies were acquired, compared to 45 in 2Q11 and 39 SaaS acquisitions in the first quarter.  The growing number of SaaS acquisitions each quarter is consistent with the results of our 2011 Software Company Buyer Survey, in which public software company corp dev heads indicated SaaS targets had finally become a priority.  As a result, SaaS company acquisitions accounted for 11.9% of all software industry acquisitions in 3Q11, compared to only 2.6% of all deals just two years ago (Figure 35).

SaaS exit valuations are also ramping. The median EV/Revenue exit multiple for SaaS providers in the third quarter was 3.7x, up from 3.5x in 2Q11.  The 3.7x median EV/Revenue exit multiple represents a 76% valuation premium over the median 2.1x TTM EV/Revenue exit multiple of on-premise software companies in Q3 (Figure 36).  Notable SaaS acquisitions in the quarter include Oracle’s acquisition of InQuira ($230 million, 4.0x TTM revenue); NICE Systems’ acquisition of The Fizzback Group ($80 million, 4.0x TTM revenue); and Augme Technologies’ acquisition of HipCricket, a SaaS based mobile marketing and advertising platform for $44.5 million in cash and stock ($6 million in cash and $38.5 million in common stock), and a $27.5 million earnout (which combined would yield a 7.7x TTM revenue multiple). Additional details about 3Q11’s SaaS M&A transactions can be found in Appendix E.

The CRM, Marketing and Sales product category accounted for 17% of all SaaS transactions in 3Q11 (Figure 37).  By contrast, on-premise CRM/Sales/Marketing software companies constituted only 2% of all on-premise software M&A transactions in 3Q11. The attractiveness of SaaS CRM to larger software companies is simply a reflection of how popular SaaS CRM has become with enterprise customers.

The HR and workforce management category, which has also moved mostly to the SaaS model, accounted for 13% of all SaaS transactions in 3Q11, while on-premise HR/WFM providers comprised only 3% of all on-premise software M&A deals in the same quarter.  SaaS providers focused on Education represented 10% of all SaaS transactions in Q3, while those in the SaaS Messaging and Legal vertical categories accounted for 6% each.

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