VALUATIONS IN PUBLIC AND PRIVATE SAAS COMPANIES - INTRODUCING THE TBP SAASY-NESS INDEX SCORE (TSI SCORE) JULY 2021 - TRUE BLUE ...
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Valuations in Public and Private SaaS Companies Introducing the TBP SaaSy-ness Index Score (TSI Score™) July 2021
Table of Contents ▪ Key Valuation Drivers for SaaS ▪ SaaS Company Valuations ▪ Introducing the TSI ScoreTM ▪ Supporting Data and Analysis © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 2 www.truebluepartners.com
Key Valuation Drivers for SaaS Companies © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners www.truebluepartners.com
Key Valuation Drivers in SaaS – Public Companies Top Growth Drivers: ▪ Size – Larger companies are valued at premiums ▪ Revenue Growth Rate – Companies with higher growth rate have higher multiples ▪ Industry Vertical – Depending on the dynamic of the vertical, valuation multiples may be different ▪ Additional factors which influence valuation – Market leadership position – Market size – Market growth rates – Competitive landscape – Possibility of getting acquired Based on analysis of 59 publicly traded enterprise SaaS companies © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 4 www.truebluepartners.com
Valuation Drivers - Public vs Private SaaS Valuations ▪ Valuation multiples for public companies don’t translate 1:1 for private companies – Same valuation multiples, in absolute values, may not always be applicable to private companies in a secondary recap/full sale • They do help quantify valuation drivers – In certain situations, valuation multiples can be achieved through structure by building preferences for Preferred Stock – Depending on the relative size of the Company and TSI Score™, an appropriate discount to related public comps is often applied ▪ Annualized Recurring Revenue (ARR) for Software Subscriptions is a key metric – Some, not all, public companies break out recurring SaaS revenue – In private companies, investors and buyers separate ARR generated from proprietary IP from professional services or reseller revenues – Investors/Buyers apply different multiples to subscription vs services revenues to value the company accurately – For high growth SaaS Companies, buyers look at the Monthly Recurring Revenue (MRR), monthly churn, and multiply by 12 to get to Annualized Recurring Revenue (ARR) for that month and then apply an appropriate discount to the selected public comps. ▪ ARR Growth Rate with high gross margins is the strongest driver for higher valuations © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 5 www.truebluepartners.com
Valuation Drivers - Public vs Private SaaS Valuations (cont.) ▪ Gross margins as a proxy for differentiated offering – Ability to invest in R&D, ability to invest in sales and marketing expenses – Ability to generate future cash flow – Pricing power vs. “Buying” revenue growth through discounting ▪ Growth Rate, Gross Margins and the TSI Score™ applies to private companies for selecting appropriate public comps ▪ Financial accounting standards for public companies are rigorous – Its important to have good revenue and gross margin recognition practices for private companies – If buyers can trust the numbers, they can be more comfortable offering premium valuations © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 6 www.truebluepartners.com
Other Important Valuation Drivers – Private Companies ▪ Number of customers – More customers the better – Lower customer concentration is better ▪ Lifetime value of a customer (LTV) and Total cost of customer acquisition (TCAC) – LTV/TCAC is the key ratio – High growth companies should target ratio of 3-4 to maximize growth rates – High TCAC reflects high cost and difficulty of acquiring customers – High retention rate, low churn lead to high customer lifetime value ▪ Cost and time for competition to enter market ▪ Market leadership in a specific market niche ▪ Proprietary technology and differentiated go-to-market strategy © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 7 www.truebluepartners.com
SaaS Valuations © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners www.truebluepartners.com
Median Multiples: 2019 - 2021 The median multiple in 2021 for communication was the highest across all sectors EV/LTM Revenue by Company Classification EV/LTM Revenue by Enterprise Value 2019 2020 2021 2019 2020 2021 21.6x 25.0x 19.6x 25.0x 22.7x 22.2x 17.8x 17.2x Median EV/LTM Revenue Median EV/LTM Revenue 15.9x 20.0x 15.6x 14.7x 20.0x 17.3x 13.8x 13.2x 12.6x 11.6x 11.1x 15.0x 10.5x 10.3x 10.1x 10.0x 15.0x 9.9x 9.8x 9.2x 11.3x10.7x 10.3x 8.1x 10.0x 6.1x 10.0x 6.8x 6.3x 4.3x 5.2x 5.9x 5.0x 5.0x 3.1x 0.0x 0.0x CRM Data/Analytics ERP & HCM Industry Communication IT $10B Accounting Vertical Enterprise Value EV/LTM Revenue by Gross Margin % EV/LTM Revenue by Revenue Growth % 2019 2020 2021 2019 2020 2021 40.0x 20.0x 33.5x Median EV/LTM Revenue Median EV/LTM Revenue 15.6x 16.2x 30.0x 15.0x 14.0x 22.5x 11.1x 11.4x 11.6x 10.1x 18.7x 9.5x 9.5x 20.0x 10.0x 8.3x 14.1x 7.3x 10.7x 4.8x 8.7x 8.4x 5.0x 10.0x 5.5x 6.1x 6.0x 6.5x 5.0x 0.0x 0.0x 80% 30% © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30 2019, 2020 and 2021 9 www.truebluepartners.com
Median Multiples: 2019 - 2021 ▪ Communications has improved significantly YoY since 2019 – Increasing communication valuations reflect continuing work-from-home / hybrid work models (remote work + in-person) which are expected to become the new norm – According to recent Gartner estimates1, the share of knowledge workers working remotely will increase to 47% in 2022 (up from 27% in 2019) ▪ Companies with higher enterprise value and growth rates continue to be valued at higher multiples despite the continuing impact of COVID-19 – Companies with revenue growth rates higher than 30% actually saw an increase in revenue multiples in 2021 compared with 2020 – Zoom and Zscaler are outliers with especially high multiples ▪ Gross Margin – 2021 revenue multiples are the highest for companies with the largest gross margins 1 Source: Gartner research © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 10 www.truebluepartners.com
Multiples and Price Trend in the Software Market YTD EV/ Revenue Multiples ▪ Communications Index continues to outperform both the SaaS Index Communications Index Nasdaq Index broader Nasdaq and SaaS Index on a multiples/price 35.0x performance basis 30.0x – Companies within the communications sector are benefitting from COVID-19 as individuals and businesses are relying more on cloud-based 25.0x communication systems in order to operate remotely (19.3x) 20.0x – With the future of work trending towards a hybrid work model, (15.7x) communication companies are likely to see sustained growth 15.0x 10.0x ▪ Besides Zoom, other communication companies such as Twilio 5.0x (5.2x) and Five9 have seen an increase in valuation multiples 0.0x Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 YTD Indexed Price Performance ▪ Revenue multiples and price for companies in verticals outside SaaS Index Communications Index Nasdaq Index that of communications have relatively underperformed since 300.0% the outbreak of COVID-19 (234.4%) – Companies specifically within the data/analytics sector have been hit 240.0% hardest 180.0% 120.0% (96.8%) (59.2%) 60.0% Note: SaaS Index consists of 59 publicly traded enterprise SaaS companies shown on slides 23-24 0.0% Communications Index consists of 7 select communication companies shown on slide 23 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Note: Data as of June 30, 2021 © 2021 True Blue Partners. Reuse permitted with-60.0% attribution to True Blue Partners 11 www.truebluepartners.com
TSI Score™: Most Reliable Indicator of SaaS Valuation Premiums © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners www.truebluepartners.com
True Blue Partners SaaSy-ness Index Score (TSI Score™) TSI scores over 100% get a premium valuation 2020 ▪ Valuation mulitples in SaaS are driven by the sum of % Revenue Growth Rate and % Gross Margins 60.0x – Annualized Recurring Revenue is key 50.0x – To achieve a premium valuation, a company must have a TSI score EV/LTM Revenue over 100 40.0x 30.0x ™ = ℎ % + % 20.0x 10.0x 0.0x 0% 50% 100% 150% 200% TSI Score™ ▪ 2021 vs. 2020 TSI Score: – TSI scores are slightly more correlated in 2021 compared with 20201 2021 60.0x – The number of companies with TSI scores over 100% in 2021 decreased compared to a similar time last year 50.0x – Zoom Video and Shopify are outliers and trading at elevated multiples EV/LTM Revenue 40.0x • Zoom Video & Shopify went public in 2019 & 2015 respectively 30.0x 20.0x 10.0x 0.0x 1 After removing outliers (including Zoom) 0% 50% 100% 150% 200% © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners TSI Score™ Sources: CapIQ as of June 30, 2020 and 2021 13 www.truebluepartners.com
TSI and Valuations: By IPO Date Companies with TSI scores >100% in 2021 received similar, premium valuation multiples regardless of their IPO date (pre or post 2014) Historically, newer companies (IPO post-2014) received higher valuations as compared to older companies (based on previous report) IPO Post-2014 IPO Pre-2014 2020 2021 2020 2021 25.0x 25.0x 21.3x 21.9x Median EV/LTM Revenue Median EV/LTM Revenue 20.0x 17.8x 20.0x 16.4x 15.0x 15.0x 11.6x 9.8x 9.6x 10.0x 8.3x 8.7x 10.0x 7.3x 6.2x 5.0x 5.0x 4.0x 0.0x 0.0x 100% 100% TSI Score™ TSI Score™ 60.0x 60.0x 50.0x 50.0x EV/LTM Revenue EV/LTM Revenue 40.0x 40.0x 30.0x 30.0x 20.0x 20.0x 10.0x 10.0x 0.0x 0.0x 0% 20% 40% 60% 80% 100% 120% 140% 160% 0% 20% 40% 60% 80% 100% 120% 140% 160% TSI Score™ TSI Score™ © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 14 www.truebluepartners.com
Size and Valuations: By IPO Date Newer, large cap companies trade at elevated multiples, driven by recent IPOs Compared to older companies, similar-sized newer companies tend to have higher multiples IPO Post-2014 IPO Pre-2014 2020 2021 2020 2021 30.0x 30.0x 27.2x 27.7x 25.0x Median EV/LTM Revenue 25.0x Median EV/LTM Revenue 20.0x 20.0x 15.0x 13.1x 15.0x 11.5x 11.8x 10.2x 10.0x 10.0x 7.2x 5.5x 6.4x 6.2x 5.0x 3.8x 5.0x 2.8x 0.0x 0.0x $10B $10B Enterprise Value Enterprise Value 60.0x 60.0x 50.0x 50.0x EV/LTM Revenue EV/LTM Revenue 40.0x 40.0x 30.0x 30.0x 20.0x 20.0x 10.0x 10.0x 0.0x 0.0x 0 50,000 100,000 150,000 200,000 250,000 0 50,000 100,000 150,000 200,000 250,000 Enterprise Value ($MM) Enterprise Value ($MM) © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 15 www.truebluepartners.com
Revenue Growth and Valuations: By IPO Date Higher revenue growth implies higher valuation, with the largest multiples being achieved at > 30% revenue growth IPO Post-2014 IPO Pre-2014 2020 2021 2020 2021 30.0x 30.0x 26.1x Median EV/LTM Revenue Median EV/LTM Revenue 25.0x 25.0x 21.9x 19.1x 19.4x 20.0x 20.0x 15.0x 15.0x 15.0x 11.8x 11.2x 11.7x 10.5x 9.5x 10.1x 10.0x 8.0x 10.0x 7.2x 4.8x 4.2x 5.2x 5.0x 5.0x 0.0x 0.0x 30% 30% LTM Revenue Growth % LTM Revenue Growth % 60.0x 60.0x 50.0x 50.0x EV/LTM Revenue EV/LTM Revenue 40.0x 40.0x 30.0x 30.0x 20.0x 20.0x 10.0x 10.0x 0.0x 0.0x 0% 10% 20% 30% 40% 50% 60% -10% 0% 10% 20% 30% 40% 50% 60% LTM Revenue Growth % LTM Revenue Growth % © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 16 www.truebluepartners.com
Gross Margin and Valuations: By IPO Date For newer companies, there has been a YoY improvement in valuation multiples across gross margin categories Older companies are trading at a discount in comparison to newer companies regardless of gross margins % IPO Post-2014 IPO Pre-2014 2020 2021 2020 2021 20.0x 20.0x 17.7x 17.8x Median EV/LTM Revenue Median EV/LTM Revenue 14.8x 14.9x 14.5x 15.0x 13.3x 15.0x 13.0x 11.6x 10.7x 9.9x 9.8x 10.0x 10.0x 7.3x 7.1x 5.6x 4.6x 5.0x 5.0x 3.7x 0.0x 0.0x 80% 80% Gross Margin % Gross Margin % 50.0x 50.0x 40.0x 40.0x EV/LTM Revenue EV/LTM Revenue 30.0x 30.0x 20.0x 20.0x 10.0x 10.0x 0.0x 0.0x 40% 50% 60% 70% 80% 90% 40% 50% 60% 70% 80% 90% Gross Margin % Gross Margin % © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 17 www.truebluepartners.com
Conclusion Key Takeaways: ▪ Correlation between company size and revenue multiples grew stronger in 2021 compared with 2020 ▪ Despite the outbreak of COVID-19 and its continued impact on businesses worldwide, current markets still continue to reward SaaS companies with highest revenue growth rate which results in higher valuations ▪ Multiples within the communications sector are trading at a premium due to the dependency on communication software driven by the work-from-home environment & potential evolution towards a hybrid work model (remote + in-person) in future ▪ Companies with market leadership in specific market niches, such as Shopify, Zoom and Zscaler have elevated multiples amidst the pandemic ▪ TSI score is the most reliable indicator of multiples © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 18 www.truebluepartners.com
Supporting Data & Analysis © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners www.truebluepartners.com
SaaS Public Comparables Enterprise Value Range - EV < $1Bn & $1Bn – 2.5Bn < $ . © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 20 www.truebluepartners.com
SaaS Public Comparables Enterprise Value Range - $2.5Bn – 10Bn , © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 21 www.truebluepartners.com
SaaS Public Comparables Enterprise Value Range - EV > $10Bn > $ © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners Sources: CapIQ as of June 30, 2020 and 2021 22 www.truebluepartners.com
Company Classifications Companies classified in 1 of 7 categories CRM Data/Analytics ERP & Accounting HCM Industry Vertical Communication 23 © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners www.truebluepartners.com
Company Classifications (cont.) Companies classified in 1 of 7 categories IT © 2021 True Blue Partners. Reuse permitted with attribution to True Blue Partners 24 www.truebluepartners.com
True Blue Partners Firm and Process Overview Steadfast partners for entrepreneurs in Information Technology Contact: Sunil Grover sgrover@truebluepartners.com 669-900-4024
True Blue Partners Overview Steadfast partners for entrepreneurs in information technology Our services include: M&A advisory, private equity recapitalizations, and co-investments Exclusively focused on Information Technology • SaaS/Enterprise Application Software • Managed Services • System Integrators/IT Services • Tech-enabled Services • Technology Solutions Serving entrepreneurs in the mid-market High impact, value-added role © 2021 True Blue Partners. All rights reserved. | 26
Deep Expertise in Information Technology Proven track record in SaaS, Software, and IT Services M&A* Recently announced deals: ▪ OSF Digital – Develops cloud-based enterprise ecommerce salesforce automation Received growth Has been acquired Has been acquired Has been acquired Has been acquired software by by by by equity from ▪ Enquero – Data Engineering IP led consulting services ▪ ProcessWeaver – Supply Chain Shipping Software provider in the SAP ecosystem Managed Services Unit Has been Has been acquired Has been acquired Has made an ▪ Notevault recapitalized by by Has acquired by investment in – Mobile SaaS provider of voice-based field automation for construction management M&A experience from multiple perspectives - Sell-side and buy-side advisor Has made an Has been acquired Has been acquired Has been acquired Has been acquired by by by by - Buying for and selling to financial buyers – new platforms investment in - Buying for and selling to strategic buyers - Controlling owner - Founder operator SaaS - Minority owner “It’s not the bank, Implementation Services - Tuck-ins it’s the banker” - Mid-market Managed Services - Bulge bracket * Includes deals done prior to the formation of TBP © 2021 True Blue Partners. All rights reserved. | 27
TBP Select Case Studies
ProcessWeaver Acquired by Elemica Advised ProcessWeaver in its sale to Elemica Transaction Overview - On December 16, 2020 Elemica announced its acquisition of TBP client, ProcessWeaver - ProcessWeaver is the leading first-to-final mile multi-carrier parcel Transportation Management System (TMS) solution provider. The company offers a digital platform that extends native ERP cloud transportation and logistics functionality - Elemica is the world’s leading digital supply chain network for the global manufacturing sector, with over $600B in goods bought, sold and moved annually through the Elemica Network Has been acquired by Significance of the Transaction - This acquisition gave Elemica access to ProcessWeaver’s features for carrier selection, tendering, label printing, tracking as well as a network of more than 500 global carriers in over 90 countries - Founder received a significant liquidity event ProcessWeaver’s key capabilities include: Role Shipping Execution - Served as the exclusive financial advisor to ProcessWeaver in this transaction Logistics Data Quality - TBP engaged with ProcessWeaver in 2016 and helped build strategic partnerships with Track & Trace global supply chain leaders Reporting & Analytics - Secured a strategic valuation for ProcessWeaver through a negotiated sale process Freight Auditing Rating & Routing © 2021 True Blue Partners. All rights reserved. | 29
NoteVault Acquired by Bentley Advised NoteVault in its sale to Bentley (NASDAQ: BSY) Transaction Overview - On June 3, 2020 Bentley Systems announced its acquisition of NoteVault, Inc, an award winning mobile SaaS provider of voice-based field automation for construction management - Bentley Systems is one of the largest global providers of software solutions for the design, construction, and operations of heavy civil infrastructure. It employs more than 3,500 colleagues and generates annual revenues of more than $700 million in 172 countries. From inception in 1984, the company has remained majority-owned by its five founding Bentley brothers Has been acquired by Significance of the Transaction - The acquisition expands Bentley’s SYNCHRO digital construction environment with industry- leading mobile field applications to track and manage labor, materials, and equipment - The addition of NoteVault further extends the value of Bentley’s digital twin cloud services across construction management, enabling projects to combine immersive 4D models of the construction, enabling more data driven management of cost, schedule, and risk, leading to better project outcomes NoteVault product offerings include: NoteVault Notes! Role NoteVault Crew! - True Blue Partners (TBP) served as the exclusive M&A advisor to NoteVault in this AlertMe! transaction NoteVault Checklist! - During the transaction process, there was an unprecedented business crisis caused by COVID-19 pandemic. Despite that, TBP was able to successfully execute a competitive auction process by clearly articulating NoteVault’s differentiated technology position and obtain multiple competing strategic buyers. This in-turn, delivered a premium market valuation for NoteVault © 2021 True Blue Partners. All rights reserved. | 30
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