Read Arma’s view on how, despite a dip in valuations in early 2016, investor demand for SaaS businesses will remain robust, justified by their attractive financial profiles and the sophistication of their software delivery models, in full on Forbes here.
After record global M&A activity levels in 2015 and a negative reception to recently listed tech companies still yet to reach profitability late in the year, concerns about waning demand for tech companies abounded in early 2016. The most innovative and cutting-edge niches within technology that had attracted the strongest demand in 2015 – from both public-market investors and strategic or financial acquirers – were slated to face the biggest correction.
SaaS businesses have emerged as a highly sought-after and transformational model for delivering software”.. This was reflected in the significant valuation premium achieved by publicly traded SaaS companies relative to more established and traditional software businesses, despite lower levels profitability.
SaaS businesses have emerged as a highly sought-after and transformational model for delivering software.
Volatility in public markets in early 2016 therefore prompted comparatively more pronounced falls in valuation among SaaS businesses. This was symptomatic of a shift in investor sentiment towards favouring profitability, having previously been more willing to subsidise the growth of a business model that generates more reliably recurring revenues and higher profit margins upon reaching critical mass.
In private markets, private equity deal activity in the SaaS space remained in evidence through early 2016 – and not just in Europe, where financial sponsors have historically played a proportionately larger role in funding SaaS companies than in the US, in the absence of the deeper, more liquid and tech-friendly public markets. IntegriChain, Solera Holdings and Keal Technology were all prominent examples of North American SaaS businesses acquired by private equity buyers or their portfolio companies.