Multiples on SaaS businesses

by a searcher from Dartmouth College - Tuck School of Business at Dartmouth

10 months ago

Hi,

We recently got in touch with a SaaS company that we find very interesting. The company develops and sells fleet tracking software, and 90% of its revenue is fully recurring. The owner is expecting a valuation based on ARR, but since we haven't done any deal like that, we're trying to get some insight from those who have. 


The company is growing over 30% YoY, so we think the owner expects what could be considered a high valuation for a traditional search fund deal. Some thoughts that come to mind: 
- Let's imagine the owner wants 12x EBITDA (whatever ARR multiple that is), and given the company growth the IRR will surpass 35% if we also sell at 12x. But with such high multiple, that's not guaranteed, so how do you think of that in regards to the valuation to acquire it?
- Even if the returns look great, some investors are usually skeptical of high growth deals with high valuations. What's your experience there?

I'm reading you! Thanks

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searcher from Harvard University - Harvard Business School

Following

1 week ago | like reply | 0 likes

searcher from University of Mississippi

What does your DCF say if you continue to grow at a similar rate but EBITDA % goes to 5% year 1, 10% year 2, then back toward 20% in years 3-5?

This post may also be helpful:

https://www.saas.wtf/p/saas-valuation-myths

10 months ago | like reply | 1 like

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