Chase Sanders, a Managing Director in Baird’s Technology and Services Investment Banking group, recently joined Akmazo Capital in a CEO Roundtable to discuss SaaS valuations in the changing economic climate. The conversation hit on topics including market observations and considerations for raising capital and the impact of valuation changes on exit timing. Read more to learn about the top takeaways from Chase.

Top Takeaways:

  • It's an unusual time in software. With public valuations down 50 - 70%, the current economic environment is a long way from 2021. The SaaS index is down more than the Nasdaq over the last year, which is peculiar given that investors typically appreciate the safety of recurring revenue SaaS businesses in down markets. Though it’s telling that the SaaS index is down, in this roundtable discussion, participants agreed that this is likely temporary, and that the SaaS market may be oversold and poised for a rebound.

  • Private valuations are ahead of public. Typically, the big public SaaS players are generally perceived to be lower risk, and it's the smaller private players that tend to have lower valuations. Right now, it’s the opposite. Panelists noted examples of strong, private companies fetching high single-digit or even double-digit revenue multiples in M&A trades, whereas few of the public players are trading in that range at this time. The panelists generally didn’t believe this unusual valuation “inversion” in software should cause concern for private players. For well performing private SaaS businesses, the public markets are not always a strong indicator of a private company’s true value.

  • Growth or profitability – what’s more important? Growth is still more correlated with higher valuation multiples than profitability, but not by as much as it used to be. At the peak of the market in 2021, for the public SaaS companies, the market valued growth roughly 4x times more important than profitability. Currently, it’s 2x. Growth is still important, but in a market like this, investors value profitability more.

Interested in learning more? Connect with Baird Global Investment Banking:

Chase Sanders