Q1 Private SaaS M&A Trends

Software Equity Group is an investment bank that puts out research on SaaS markets. They recently released their Q1 report. A summary is below but the full report may be found at https://softwareequity.com/research/.

M&A volume has settled. There were 823 deals in Q1, in line with Q1 2023 but of course far off from 2021/2022’s volumes. Late 2021 and early 2022 saw crazy volumes that were driven by abnormal euphoria. 2019 and 2020 were much more normalized and healthy periods. While we may be down from 2021/2022, the market is still healthy relative to a longer historical lookback.

Multiples are down to 5.1x LTM revenue on average and 3.8x on median. As you can see these figures are down from Q1 2023 and roughly in line with Q4 2023. We’d argue these multiples are abnormally low because they’re being pulled down by distressed transactions, so the thing to look at is the trend, not necessarily the level. Hopefully, the trend is showing us we’re bottoming.

Private equity volume is at a record. “Once again, private equity investors comprised the majority of SaaS M&A, comprising 59% of deals in 1Q24. The percentage was slightly down YOY (from 60% in 4Q22) and QOQ (from 60% in 3Q23).”

Verticals and industries. “Vertically focused businesses comprised nearly half of all SaaS deals in 1Q24 (48%), similar to1Q23 (49%).”

Our view: the market is normalizing to more sustainable levels. The great M&A market we saw in late 2021 and early 2022 is over, but the current market is more akin to what we saw in 2018/2019. We’d call it healthy. Big thanks to SEG for putting the data together. Please reach out to them to learn more about their investment banking practice. Thank you for your readership.

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