What multiple do private SaaS companies get acquired at?

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JASON LEMKIN

1x-50x ARR.

I don’t mean to be tongue-in-cheek.

But it’s nuanced.

Rough-and-tough:

  • A SaaS company that isn’t growing and isn’t winning might sell for 1x ARR.  See, e.g., Vertical Response.
  • A SaaS company that is doing well in a “hot” category but isn’t a Top 1 or 2 player might sell for 2-5x ARR.  A well-known public company recently said they won’t pay more than 2x for “non-winners”.  Typically, the acquirers are looking for a discount to their own multiples here to get comfortable with buying a non-winner.
  • A SaaS company that is perceived as a potential winner for a tuck-in acquisition, these smaller deals often happen for $50m-$100m.  Usually they need at least $1m in ARR to prove themselves … so could be 10-50x, although these deals aren’t truly multiple driven.  So the multiple looks pretty high.
  • An established SaaS company doing well might sell for 8-12x ARR.  Not sure exactly where, but 10x ARR or an equivalent for forward multiples.  This is still a premium to public comps today, so the public co. is “paying up” for higher growth.  Some of these multiples got pushed up through 1H’15, but not so much right now.
  • A potential category killer is often acquired for 2-3x the last round valuation.  See, e.g., Yammer for $1.2b or RelateIQ for $400m.  The ARR multiples will make you cry, but it’s not really about that.  It’s about buying a potential category winner before it’s too late.  And paying the price that will clear.

So look beyond the seeming comps.  They are usually confusing.

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Published on January 29, 2016
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