Enterprise Software: 2022 Valuation Multiples

The Enterprise Software sector has been on the rise for quite some time. It’s no surprise that the 2021 signature cocktail of a global pandemic, the rise of remote work, the so-called “Great Resignation” and other socio-economic shifts caused B2B SaaS valuations to skyrocket, amidst booming M&A and a bullish stock market.

Throughout and after Covid, investors worried that these positive conditions would be transitory—a worry that proved correct this year. A global energy crisis, supply chain disruptions, inflation and recessions in most of the western world resulted in a 27% shrink in global M&A between the first half of 2022 and the same period in 2021, per Hampleton Partners.

Very few sectors were spared as stocks, bonds and even cryptocurrencies plunged with some of the most significant losses in recent times—Enterprise Software is one. While the global market suffered a hard hit, M&A for Enterprise Software saw deal volume growing over 6% and total disclosed deal value increasing 16.5%, according to Hampleton Partner’s latest M&A Report.

Both the second half of 2021 and the first half of 2022 marked a steep increase in number of M&A deals in the space, sending strong consolidation signals, especially considering that strategic acquisitions increased to 64% of total this year, versus decreasing Private Equity deals.

The success of the sector is believed to relate to a further post-pandemic acceleration in demand for cloud-based solutions from businesses looking to adopt leaner operations and more flexible supply-chain structures in light of a fast-changing macroeconomic environment. Additionally, stable recurring revenues from SaaS business models are an investor favourite when it comes to facing an upcoming recession. For these reasons, among others, a recent report by Market Research Future predicts a healthy CAGR of 9.5%, expecting the sector to further grow beyond $625bn by 2030.

With 21 acquisitions in the last two and a half years, 9 of which in 2022, Norway-based software company Visma—backed by PE firm Hg—is the top acquirer in the space. With 91 acquisitions in total, Visma is now one of Europe’s largest software companies, with €2.1bn in revenue and €590m in EBITDA in 2021.

While Visma has recently signed deals with targets all over the globe, particularly Latin America, regional divide in the Enteprise Software sector is still rather strong, with most European acquirers approaching local targets and their US counterparts doing the same across the Pond. Western Europe, however, was the fastest growing region by number of M&A deals in the space.

In terms of sub-sectors, Enteprise Applications accounted for over a third of disclosed deals growing by 44% YoY. This vertical includes ERPs (enterprise resource planning), CRMs (customer relationship management), SCMs (supply-chain management)… it’s easy to see how these software solutions tackle very current issues for global businesses.

The fastest-growing sub-sector, however, was Business Intelligence and Customer Analytics, jumping over 50% year-on-year to 168 deals in the first half of 2022 and showing premium multiples too. This is a side-effect of the recent market volatilities, according to Hampleton Partners’ report, with CEOs looking to bring these functions in-house in order to navigate the current climate.

Enterprise Software EBITDA & Revenue Valuation Multiples

30-months trailing Revenue multiples have been on an upward trend for the past 5 years, steadily growing from 3.5x in 2018 to upwards of 5x by the end of 2021.

In the first half of 2022, the median Revenue multiple for Enterprise Software companies was 5.2x.

EBITDA multiples have remained more constant over time, hovering around the 17x mark between 2018 and 2021, before a sharp increase in 2022. In the first six months of 2022 the median EBITDA multiple for Enterprise Software companies was 20.3x.