The enterprise software market review - Q1 2020
Welcome to the Q1 2020 edition of the Enterprise Stack report – Results International’s quarterly market update for the enterprise software sector.
1. Covid-19 had a short, sharp impact on the public markets, and while enterprise technology has been affected in part, we believe that these short term repercussions for the sector could propel it forward at a faster rate than otherwise achieved.
2. Enforced remote working has accelerated digital transformation and moved the conversation to mission critical. Enterprise software is a major winner.
3. As companies focus on cash generation and preservation in the uncertain climate, M&A has understandably taken a hit; March volumes were down and bought Q1-20 to its lowest level since Q4-17. Previously live M&A transactions have gone on pause as opposed to being cancelled as buyers wait for the pandemic to pass, leading us to believe the bounce back in the M&A market will be strong.
1. The recovery following 2008 was strong for enterprise software and it is already showing promising signs; Nasdaq is back to levels seen six months ago and SaaS has also recovered to a similar level – SaaS was the big winner in the last recession as investors looked to quality revenue streams; the same is likely to be the case here.
2. With the near-term pain offset by future structural upside, there is a significant opportunity to all:
Despite current market turbulence, 2020 will remain a good year to contemplate fundraisings, exits or acquisitions in the enterprise software space. Please do get in touch to discuss.
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Notes: Based on share prices as at 31st March 2020; indices weighted by market capitalisation. Sources: Capital IQ and Results International analysis.
Note: For Security, 75th percentile values have been overlaid (shaded lighter) to illustrate next-generation vendors. Note: EV = Enterprise Value; financials calendarised to December year end; median values reported. See Selected Publicly Traded Companies (click here) for details of companies included in each category. Source: Capital IQ
Sources: Press releases, Capital IQ, Mergermarket, 451 Research and Results International analysis.
Note: PE also shown as acquirer when acquisitions made through portfolio company; parent also shown as acquirer when acquisition made through group subsidiary/ group. Sources: Press releases, Capital IQ, Mergermarket, 451 Research and Results International analysis.
Notes: Based on share prices as at 31st March 2020; indices weighted by market capitalisation. Sources: Capital IQ and Results International analysis.
(1) These companies IPO’d within the last 12 months, the share price movement represents the change between the stock’s IPO date and 31st March 2020. Note: Based on share prices as at 31st March 2020. Sources: Capital IQ and Results International analysis.
(1) These companies IPO’d within the last 12 months / last quarter, the share price movement represents the change between the stock’s IPO date and 31st March 2020. Note: Based on share prices as at 31st March 2020. Sources: Capital IQ and Results International analysis.
(1) Pure play SaaS represents the median of all stocks in Large Cap, Mid Cap and Small Cap, with no weighting applied. Notes: EV = Enterprise Value; financials calendarised to December year end; median values reported. See Selected Publicly Traded Companies (click here) for details of companies included in each category. Sources: Capital IQ and analyst reports.
(1) Number of companies with applicable multiples in Q1 2020 index. Notes: EV = Enterprise Value; financials calendarised to December year end, which can impact the multiples at the start of each year as the base is shifted forward; weekly tracking of valuation multiples commenced in July 2015, October 2014 – June 2015 tracked on a quarterly basis, therefore a linear progression has been assumed between quarters up to July 2015. Dotted line represents median since data has been tracked. Source: Capital IQ
Note: Calendarised to December year end; $ millions, except share price data; multiples capped at 20x EV / Revenue and 50x EV / EBITDA; net debt includes minority interest. Source: Capital IQ.
Note: Calendarised to December year end; $ millions, except share price data; multiples capped at 25x EV / Revenue and 50x EV / EBITDA; net debt includes minority interest. Source: Capital IQ.
Note: Calendarised to December year end; $ millions, except share price data; multiples capped at 20x EV / Revenue and 50x EV / EBITDA; net debt includes minority interest. Note: Market cap classifications categorised by CY2019E revenue: Large Cap: revenues greater than $900m; Mid Cap: revenues between $350m and $900m; Small Cap: revenues less than $350m. Source: Capital IQ, broker reports.