Valuation & EBITDA Multiples for Tech Companies: 2023 Report
These valuation multiple tables reflect research conducted by our analysts between H1 2022 and H1 2023 on private company M&A transactions within the tech sector. They display average EBITDA and revenue multiples for tech companies within 9 industries, which we further subdivide by EBITDA or revenue range.
EBITDA Multiples for Tech Companies, H1 2022 – H1 2023
Revenue Multiples for Tech Companies, H1 2022 – H1 2023
The following sections provide context for the multiples listed above by discussing the current state of tech M&A, as well as common factors affecting the valuation of tech companies.
The State of Tech M&A in 2023
Until recently, the tech industry was thought of as a relatively stable, reliable field in which to invest. With the onset of the pandemic in 2020, these multiples rapidly rose, largely due to the growing need for tech solutions in the face of work-from-home mandates. When the economic downturn started in H2 2022, these multiples fell, as many tech companies couldn’t produce value at the scale of their projected worth.
As it sits now, the tech industry is going through something of a reckoning within M&A. The last two years in particular have seen great use of revenue multiples to mask a lack of quantifiable data establishing profitability in tech startups with heavy sunken costs. This tactic earned many tech companies a higher payout in frothier times, however buyers in 2023 have grown more stringent in their acquisition choices, demanding a clear path to profitability before considering a purchase.
Despite these overall considerations, the future impact of tech companies is undeniable. With an expected industry CAGR of 9.5%, tech fields are expected to grow into a conglomerated industry worth over $600b by 2030, with overall growth being led by fast-growing sectors like business intelligence and customer analytics.
Based on our read of the market, our research team has the following assumptions about the future of the tech industry:
- Valuation multiples will continue to decline incrementally as the risk in speculative fields of tech become more apparent and buyers become more wary.
- EBITDA will likely regain its original prominence, with investors having learned from the mistake of relying too heavily on revenue multiples that do not indicate a company’s true profitability.
- PE Firms & Strategics will likely favor different sizes of tech companies. PE firms are more likely to favor smaller startups with the intention to gut and grow them over time, while strategics are more likely to consider larger tech firms to increase market share, adopt rival company features, and eliminate competition.
Factors Affecting Multiples
With public deal information available for approximately 1,400 deals over 2022, our research team identified not only the annual multiple averages listed above, but also the criteria upon which those multiples were earned.
The table below identifies these criteria, as well as an approximated weight for each. This weight was determined by the overall impact their absence or presence appears to have had on previous multiples offered.
Valuation Factors For Tech Companies, Weighted
|Proof of Cash Flow||Companies able to provide proof of revenue demonstrate not only sales, but sustainable long-term profit.||40%|
|Company Size & Age||Larger tech companies with a proven model of sustainability over time offer stability that smaller companies cannot offer, making them more appealing to buyers.||35%|
|Owner Dependency||Companies requiring the input of the owner in order to function do not sell well, since the owner will be gone post-closing.||20%|
|Investor Base Width||The more prospective customers a technology company has, the more opportunity buyers are likely to see in it.||5%|
It should be noted that additional factors (e.g. geography, specialization) were factored into a company’s valuation. The difference between these smaller examples and the four listed above is that the examples on the table were noted in more than 90% of deals listed, indicating a greater reliance on them on the part of buyers in both PE firms and strategics.
Selling a Tech Company
Anyone who has sold a company before will tell you that it’s a complicated experience, regardless of the seller, industry, or EBITDA range. This is especially true in the 2023 market, where micro-concerns about a company’s future meet the macroeconomic turbulence.
I have sold several tech companies myself and am happy to offer advice from a neutral, third-party perspective. You can reach me via the link below or through the contact page on this website.
- Valuation Multiples for Tech Software Companies [2023 Updated] (Microcap)
- A Guide to Valuing Tech, Software & Online Businesses (Morgan & Westfield)
- Software Valuation Multiples: 2015-2022 (Aventis Advisors)
- Enterprise Software: 2022 Valuation Multiples (Finerva)
- How to value a technology business (Isosceles Finance)
- Valuing high-tech companies (McKinsey & Company)