I have read that for SaaS companies some people prefer using revenue stream versus EBITDA. I just wanted to get some insight or opinion on either or. A company I am streaming uses a revenue multiple and not EBITDA multiple in asking.
More on Searchfunder
Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.
1) I just ran a valuation analysis for a SaaS business. The answer was 3x revenue, 12x EBITDA for 35% IRR with <70% Equity, $30% Seller financing and small earn-out. EBITDA was projected to grow 7x in 5 years. I have tools to do such analysis interactively in minutes.
2) Few years back a seller of a profitable (good margin) SaaS company wanted a very high multiple (does not matter revenue or EBITDA). Her expectation was slightly over market multiple. I sliced the market data into =<10% margin and >10% margin. The data clearly showed that high margin businesses sold for a lot lower multiple than low margin businesses. The difference was dramatic. She engaged another I-banker who promised high multiple. Business did not sell. 10 years later owner sold it for low value,
3) 10+ years ago had a Saas business in NY in cloud tech. Very low EBITDA margin ($5 M sales, $50 k EBITDA). We sold it to a buyer who did not need my client's $3 M R&D team.
My main point is ...Blind reliance on multiples risks BK.
If the ARR growth rate is higher than the EBITDA margin, use a revenue multiple. ARR multiples become justified when the high growth rate returns a value on your multiple.
If the EBITDA margin is higher than the ARR growth rate, use an EBITDA multiple.