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Jun 11 2008

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Valuing SaaS businesses

Over the past year, I’ve mused a couple of times about what it might cost to acquire a construction collaboration SaaS business (see Valuing a SaaS business, for example, and CTSpace sold for just £6.5m).

SaaS businesses are under the spotlight this week at the SIIA OnDemand Europe conference in Amsterdam, where Phil Wainewright took note of the views of a mergers and acquisitions expert, Jérôme Fougerat, for a blog posting, Want Cash? Buy SaaS:

“Valuation for SaaS is declining, but less fast than the overall software industry,” he said. “There really is differentiation in value between SaaS and the whole industry.” Revenue multiples (ie, the acquisition price compared to annual turnover) for SaaS companies were 3.99 in September last year, rose to 4.62 in January and were still at 4.0 last month, he said, compared to 2.6 for conventional software vendors.

Of course, these multiples will be averages; some SaaS businesses will change hands for more, others will cost considerably less (CTSPace being a recent example). Various factors will affect the valuation but the ability to generate cash is, in Fougerat’s opinion, top of the list when it comes to a SaaS vendor’s attractiveness.

Incidentally, according to its website, Tony Ryan, CEO of UK-based construction collaboration vendor Asite is participating in the OnDemand event today, alongside 4Projects‘ CEO Richard Vertigan, talking from experience about the best way to fund a SaaS start-up (two very different experiences here, I’m sure). 4Projects’ MBO backer August Equity is also speaking at the event in the preceding session.

Permanent link to this article: http://extranetevolution.com/2008/06/valuing-saas-businesses/

2 comments

1 ping

  1. Landon Hoover

    I think SaaS revenue multiples will continue to decline as long as there is no clear path to monetization. Do you know how SaaS providers are monetizing their solutions; more specifically, are there resources that can help SaaS companies more easily monetize their ideas? I have heard of a few resources, eVapt (www.eVapt.com), which is a company that supports SaaS providers;however, I was curious if you knew of more resources that can monetize SaaS and keep the revenue multiples high?!

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  1. A SaaS CEO’s perspective | Extranet Evolution

    […] noted last month (see Valuing SaaS businesses) that a couple of UK construction collaboration technology providers were speaking at the SIIA […]

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