SaaS M&A
Hi guys,
I keep reading about traditional M&A processes etc but the available knowledge in the public space on tech M&A seems to be very light so I was wondering if you could shed some light:
- How would you go about an accretion/dilution analysis between 2 tech companies (since in SaaS, bookings and billings are more important than Revenue which is a rear view mirror indicator)
- How would you analyse bookings? (bookings vs revenue ratio over time to see if the company will still grow in the future?)
- Would the purchaser just write off the Deferred Revenues? (since the cow has already milked for cash)
- Are there any "rule of thumbs" when it comes to valuing companies with multi-year prepaid contracts?
If you guys know some good resources when it comes to tech M&A, please feel free to share :)
Thanks much and happy new year in advance
These guys published some interesting articles on the topic: https://www.saas-capital.com/research/
The deferred revenue aspect is not just written off typically, but also not paid for in entirety. It is actually a tough part of negotiation for tech M&A for bankers. I have been asked on how I would respond to a buyer asking that very question in an interview in the past. Given that in tech there is very commonly a recurring revenue aspect, you are essentially buying a client book, so there is some sort of price tag to be given.
To your question on booking, and I hope others chime in on this, gauging profitability has a lot to do with understanding the infliction point of a profitable business model in terms of the incremental cost of distribution of their software. Whatever net income says, an overlooked aspect is net working capital, as its negative nwc growth is a strong aspect of fcf generation for software companies
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