1Q21 M&A Update – Everything is for Sale!
I was recently asked by a journalist why is M&A activity so high in the tech space and if everything is for sale. It sure feels that way sometimes what with so many high-profile companies recently announcing their exits. This combined with a strong IPO market has led to lots of liquidity for founders, which is obviously a good thing! But let us take a deeper look at the quarter so you can see for yourself how elevated activity is right now.
Figure 1 – Monthly Software M&A Activity
Source: Pitchbook.
One chart that I really like to look at to validate what we at Sampford are seeing in the M&A market is monthly deal volume. As you can see, transaction count really declined post covid, strengthened in the third quarter last year and really finished the year strong in the fourth quarter. That trend has continued in the first quarter of this year, with us averaging over 150 deals per month – which is considerably higher than the pre-pandemic average of just over 100.
Figure 2 – Annual Deal Volume
Source: Pitchbook.
This elevated deal volume can really be seen in figure 2, which puts the number of deals and the $ volume of those deals in context on an annual basis. In 2019 and 2020, we did $179bn of deals (just a coincidence they are both the same). At the current pace we are on track to do nearly 55% more in $ volume than the previous year – which was a recent record and significantly more elevated than the 5 years that preceded 2019.
But also encouraging is the fact that the number of transactions is also up significantly and on pace for the strongest year in recent history. This aligns with what we are seeing at Sampford in that mid-market deal volume is up significantly too and its not just the mega deals that are driving overall activity. This is especially good after a couple of years of declining deal count, which was felt harder in the mid-market, especially in 2019.
Figure 3 – SaaS and Non-SaaS Valuations
Source: Pitchbook.
What does all this activity mean for valuations? Well, they are definitely up after last year’s decline. This can be seen more clearly in figure 3, where average SaaS valuations increased from 4.2x in 2020 to 5.4x so far this year. On the non-SaaS side of things, we have seen continued stabilization around the 3x mark, which is not surprising given that the financial and strategic buyers are focused on SaaS business models or non-SaaS models that can be converted to SaaS.
We are seeing across all our deals very healthy valuations, but it is still very much metrics driven. We have some of our deals trading for north of 10x ARR, whereas others are below 5x if they have less than perfect retention metrics or if growth has slowed.
So is everything for sale? Well if it’s a good SaaS business with scale, growth and solid churn metrics, then there is a good chance it is. Want to know how your SaaS business measures up? Reach out and we can quickly tell you what its worth and if its sellable in today’s market.
Written by Ed Bryant.
About Sampford Advisors
Sampford Advisors is a boutique investment bank exclusively focused on mid-market mergers and acquisitions (M&A) for technology, media and telecom (TMT) companies. We have offices in Toronto, ON, Ottawa, ON, and Austin, TX and have done more Canadian mid-market tech M&A transactions than any other adviser.