Q2 SaaS M&A Report: Continually Strong
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Q2 SaaS M&A Report
The recently-released Software Equity Group (SEG) Q2 SaaS M&A Update Report shows publicly-traded B2B SaaS companies experienced a solid first half of 2023, with continued strategic buyer and private equity interest resulting in strong M&A outcomes for high-quality SaaS businesses exhibiting capital-efficient growth, strong retention, and product differentiation.
We reviewed the report and found valuable insights and trends to share.
Appetite for SaaS M&A Remains High
B2B SaaS companies continue to be highly sought-after acquisition targets driven by long-term factors, including the need for competitive differentiation and continued adoption of modern technology to optimize business processes.
Quarterly deal volume totaled 538 transactions in Q2
Outside of 2022, this quarter’s transaction volume greatly surpasses historical second quarters with a 36% increase over 2Q21 in deal count.
Annual SaaS M&A volume is projected to have another impressive year in 2023, falling just short of 2022’s total but significantly higher than 2021 and prior years, demonstrating the staying power of SaaS amid shifting macroeconomic dynamics.
Q2 EV/TTM Revenue Multiple Decreases
The average EV/TTM Revenue multiple for SaaS M&A was 5.6x, falling slightly below Q1’s 5.9x average.
Certain SaaS cohorts continue selling for premium multiples. Companies fitting the profile from a SaaS KPI (capital efficient growth, strong retention, etc.) and product differentiation standpoint experience stronger outcomes.
The delta between the average and median multiple for this quarter is likely attributed to the valuation compression in the M&A market for underperforming companies or those undergoing a transaction out of necessity.
Fintech Leads Vertical SaaS Offerings
Vertically focused businesses comprised 46% of all SaaS deals in 2Q23, down slightly from last quarter’s record 49%.
Financial Services SaaS led all other vertical sectors, representing 18.9% of all SaaS deals. The increase in fintech M&A is driven by the expanding need for software-enabled data and analytics to comply with industry regulations and improve risk mitigation.
Private Equity Maintains Strong SaaS M&A Presence
Private equity investors drive most of SaaS M&A, representing 61.3% of deals in Q2 due to the ability to scale revenues with capital efficiency while relying on predictable recurring revenue models.
For context into PE’s increasing footprint in SaaS M&A, 2Q18 PE buyers represented 47% of SaaS M&A deals.
The PE share of the M&A market is growing due to record amounts of dry powder investors hold and stunted valuations for many publicly traded strategics.
You can view the full report here.
About Bloom Equity Partners
We're big fans of mission-critical enterprise software, technology and tech-enabled business service companies with a competitive moat and a loyal, diversified, and growing customer base. Whether the business is bootstrapped, VC-backed, or a division of a larger organization, Bloom is completely agnostic to the structure. We are actively seeking investment opportunities that fall within the criteria below. We welcome the opportunity to discuss potential investments with founders, operating executives and intermediaries.
Our Investment Criteria
Industry: Enterprise Software, Technology and Tech-Enabled Business Services
Geography: North America, Europe, Australia and New Zealand
Revenue: $5M - $50M (>70% recurring)
Growth: 5%+ annual revenue growth
Retention: >80% gross annual customer retention
Profitability: Positive EBITDA or near breakeven within twelve months
Investment Type: Operational control required
If you or someone you know is considering selling or taking investment in their business, we would love to learn more! We just launched our referral partner program, which compensates referrers for introductions that lead to affirmative outcomes.
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