Do PE Acquisitions of Public Startups Indicate We have Hit a Pricing Backside? by @ttunguz


This yr, personal fairness corporations have acquired 5 public software program corporations, totalling $38b in worth. Seven months into 2022, these figures exceed final yr’s totals, one thing I questioned about final month.

Since these transactions’ particulars are public, we are able to use them to deduce how the personal software program market values corporations.

Firm Acquirer Worth Progress Charge A number of FCF Margin
Avalara Vista 8.4b 32% 9.2x 2%
Ping Id Thoma Bravo 2.4b 13% 6.6x 6.2%
Zendesk Hellman Friedman 10.2b 31% 5.1x 10.5%
Anaplan Thoma Bravo 10.4b 33% 13.4x -6%
Sailpoint Thoma Bravo 6.9b 22% 11.1x -2%

Within the final decade, a software program firm’s income progress correlated most extremely to its valuation a number of.

On this small knowledge set, progress charges don’t correlate to multiples. Neither does profitability (web revenue margin), which clocks in at -0.13.

I questioned if the Nasdaq’s current rebound might need influenced these numbers: sturdy Q1, crash in Q2, & then some resurgence of late. However no relationship exists between the Nasdaq’s value degree & multiples. Zendesk & Anaplan introduced their acquisitions inside days of one another & their multiples sure the outer edges of the vary: 5.1x & 13.4x.

Curiously, free-cash movement margin correlates to forward-revenue/EV multiples at -0.996. An ideal destructive correlation. The extra free money the corporate produces, the decrease the acquisition a number of. I’m at a loss to clarify this relationship. Maybe a reader who understands the PE mannequin extra deeply will write in to clarify it.

Nonetheless, we are able to glean some insights. The info suggests the market has attained a pricing ground. Multiples bear no correlation to the Nasdaq’s habits, firm progress charges, & profitability. The underlying enterprise should have some base worth which is the the place the market has cleared these transactions. Software program corporations rising between 10-35% commerce at 5-13x ahead revenues.

I can’t verify how document fundraising inflows into personal fairness funds would possibly bolster these costs, however the billions burning holes in PE wallets should impel some exercise.

As 2022 concludes, transactions like these will inform late-stage enterprise costs. These figures will fill the comparables sections of funding memos.


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