SaaS Valuation Multiples: 2023 Report

Last Updated: July 12, 2023

Our analysts recently conducted a meta-analysis on SaaS valuation multiples, aggregating publicly available data on SaaS dealflow from Q1 2022 – Q3 2023. The table below shows the average valuation multiples private SaaS companies are selling for today, broken down by the 3 most common valuation models: EBITDA, SDE, and Revenue. The data is further segmented by SaaS business type and EBITDA/Revenue/SDE range.

(Sources)

2023 SaaS EBITDA Multiples [Private Sector]

2023 SaaS Revenue Multiples [Private Sector]

2023 SaaS SDE Multiples [Private Sector]

The following sections provide further context to the data above by offering a high-level overview of the current M&A environment for private SaaS companies, as well as suggestions for how to sell a SaaS company in 2023.

The 2023 M&A Market for SaaS Companies

Globally, the SaaS industry is valued at $186.6 billion in 2023, most of which are enterprises. With a CAGR of 25.25%, the industry is expected to more than triple by 2028, coming to a total of $720.4 billion. These numbers are on track with the industry’s historical expansion, having increased 7x over the last 10 years as more companies are seeking cloud-based services for their company.

Despite its projected growth, the economic downturn of Q3-Q4 2022 has negatively affected current valuation multiples. As of Q2 2023, industry reports have projected SaaS revenue multiples at a three-year low, averaging a pre-pandemic level of ~5.5x. By comparison, Q3 2021 valuations hit a record high of 9.8x. Such a dramatic decrease is both a comment on the economic impact of global events (e.g., inflation or Russian invasion of Ukraine) as well as the volatile nature of SaaS and the tech sector as a whole.

Average EBITDA Multiples for SaaS Companies [Private], H1 2019 – H2 2023

As the economy begins to recover, SaaS company owners seeking to sell their company are contending with several challenges:

• Increased business-lending interest rates as a result of the bear market (from approximately 4.5% last year to nearly 10% currently)
• Massive sunk investments in company operations, leading to a difficulty in properly valuating the company’s worth

These factors contribute to the somewhat sparser M&A market of 2023. PE firms and strategics are reporting that business owners are increasingly negotiating the sale of their business through M&A advisors who are experienced with SaaS and technology.

Common SaaS Valuation Models

Valuations for SaaS companies can vary substantially because most are unprofitable in the early stages of growth as they invest in scaling. As a result, models that look at company earnings (ARR, YoY Growth Rate, Gross Margin) are preferable for sellers as opposed to those that look solely at EBITDA. In general, larger companies, i.e. those with >$25 million revenue, will want to emphasize EBITDA in an M&A process whereas smaller companies will want to suggest alternative valuation models that focus on projected growth.

Below is a comparison of the 3 most common valuation models for SaaS companies.

Common SaaS Valuation Models

Non-Financial Factors Affecting SaaS Valuations

When going to market with a business, SaaS owners and investors should also be aware of the following non-financial factors that have a substantial affect on valuation.

Non-Financial Factors Affecting SaaS Valuations

Further Questions

The uncertainty of the current market makes it an especially difficult year to properly value your own company. If you have any questions, I’m happy to offer advice from the perspective of someone who has sold multiple companies to a variety of buyers. You can reach me using the address below or by using the contact page on this website.