Business Valuation Multiples Paid for Technology Companies

2016 Valuation Multiples Paid
Software, SaaS & Internet TechCompanies
Revenues Under
$50,000,000??

Software Business Valuation Multiples Updated for 2016
DISCLAIMER
While iMerge Advisors Inc., has used reasonable endeavors to ensure that the information provided in this document is accurate and up to date as at
the time of issue, neither iMerge Advisors nor its third party content sources shall be liable for any errors, inaccuracies or delays in the information, nor
for any actions taken in reliance thereon, nor does it endorse any views or opinions of any third party content provider. iMerge Advisors disclaims all
warranties, express or implied, as to the accuracy or completeness of any of the content provided, or as to the ﬁtness of the content for any purpose
to the extent permitted by law.

The content herein is not appropriate for the sole purposes of making a decision to carry out a transaction or trade and does not provide any form of
advice (investment, tax, legal) amounting to investment advice, nor make any recommendations or solicitations regarding particular ﬁnancial
instruments, investments or products, including the buying or selling of securities iMerge Advisors has not undertaken any liability or obligation relating
to the purchase or sale of securities for or by any person in connection with this document.
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Exit Multiple - Average
Exit Multiple - Median
Exit Multiple - Average (Weighted)
ExitMultiplesPaid(GrossRevenues)
Transaction Deal Size
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Software Sector Multiples for Transactions $50 Million & Under
2012-2015
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3
5
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$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00
MultiplesPaidOnGrossRevenues
Transaction Size (Millions)

Transaction Details
Seller Description Deal Size Revenue Multiple
US based company engaged in the development of on demand safety management solutions $50.10 3.85
US based provider of enterprise video management in uniﬁed communications space $50.00 5.56
US based business engaged in data and web security $50.00 2.94
US based solution provider of data backup, restore, disaster recovery, replication and storage reporting software
solutions
$44.87 0.73
US based provider of software solutions for management of media and community applications $44.70 3.73
US based company that develops, manufactures and markets life saving external cardiac deﬁbrillator devices
and proprietary softwares
$43.89 0.28
US provider of Global Positioning System (GPS) enabled location technology for high-volume mobile consumer
devices and commercial applications.
$42.87 0.18
US based marketer and distributer of video games $42.65 0.15
US based company that develops software solutions for service experience management $41.98 0.64
US based network testing tool software provider $40.60 0.92
US based company engaged in manufacturing of wireless network equipment and technologies $40.50 8.10
US based company which provides software and services to communication providers globally $39.27 2.71
US based company engaged in development and licensing of automated translation solutions $38.50 3.16
US based provider of cloud-based, point-of-sale (POS) analytics $38.47 3.64
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US based developer of matter lifecycle management (MLM), electronic discovery, and litigation support
solutions
$37.65 1.64
US based provider of extensible Business Reporting Language (XBRL) filing services, data sets and analysis
tools
$36.88 1.33
US based integrated online marketing company $35.70 1.19
US based company develops software products that enable network equipment manufacturers and service
providers to deliver broadband to the digital home
$33.67 0.32
US based software provider for automating and optimizing Financial processes. It also offers Consulting
Services
$32.90 1.17
US based provider of biometric fingerprint security technology company $32.04 1.78
US based company providing embedded Wi-Fi hardware and software solutions $30.00 1.74
US based provider of Privileged Access Lifecycle Management (PALM) solutions for heterogeneous IT
environment.
$30.00 1.50
US based provider of agile airborne Intelligence Surveillance and Reconnaissance solutions and Micro Terrain
Intelligence
$30.00 1.35
US based provider of trading technology and FIX connectivity services to the financial industry $28.70 2.88
UK based software & consulting services provider to scientific, technology and engineering establishments $27.94 1.00
US based provider of infrastructure, applications, content provisioning, and integration services for deploying
and maintaining innovative location-based services
$25.00 1.37
US based provider of contract management software and services for the enterprise $24.21 0.70
US based company that develops K-12 business software solutions $23.50 1.96
US based company provides government-to-citizen email and wireless communication solutions $22.13 2.46
US based company engaged in information technology consulting services $22.00 1.29
Canada and US based businesses engaged in development of software for industrial automation, process
control and power distribution
$22.00 0.63
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US based ﬁrm that provides contact center consolidation solutions $20.05 1.14
US based company engaged in providing Web-based revenue cycle tools for the healthcare industry $19.50 2.29
US based developer and manufacturer of gaming software $18.90 0.61
US based provider of universal, multi-platform software solutions for fast, secure, and inexpensive ﬁle transfers
both inside and outside the enterprise
$18.22 1.96
US based supplier of advanced video surveillance solutions $18.08 0.50
US based provider of practice management software, electronic health records and revenue cycle management
services
$18.00 0.64
US based provider of information technology products, e-business solutions and professional services to
medium and large commercial customers and government and educational accounts
$17.56 0.06
US based provider of repair services and products for the telecom, imaging, defense/aerospace, medical,
semiconductor, industrial automation and IT markets
$17.41 0.59
US based provider of software development lifecycle services in support of the Intelligence Community $16.70 1.39
US based company engaged in the development of sleep diagnostic software systems $16.10 0.54
UK based digital media and corporate communication business which delivers visual asset management
solutions
$16.02 5.05
US based holographic security business $15.50 0.79
US based telecom software engineering service provider $15.00 1.25
US based application software developer, and IT services provider $14.70 1.48
US based software and technology company, a provider of online ecommerce software $14.51 0.40
US based technology consulting company engaged in providing collaboration, productivity and business insight
solutions
$14.40 1.20
USA based provider of software for clinical analysis $14.00 3.50
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US based provider of debt collection software and services for collection agencies, first party creditors, debt
buyers, and law firms
$14.00 1.79
US based embedded security solutions business $13.80 0.89
Israel based company which provides information leakage prevention solutions for enterprise endpoints $13.27 2.14
US based company that provides program/project management, information assurance, network engineering,
systems engineering, and software engineering services
$13.00 1.01
US based company providing federal, state, municipal software solutions $12.71 1.43
US based company develops application infrastructure software for Web and application deployment, managed
file transfer, and SharePoint synchronization
$11.80 1.48
US based company provides Linux email, group calendaring, and messaging solutions $11.73 5.31
US based IT company that provides computer harware and software solutions $11.60 0.29
US based provider of IT software and services for the medical, pharmaceuticals, and biotech sectors $11.50 0.71
US based provider of electronic clinical documentation and charge capture solutions to the health care industry $10.92 2.73
US based network content control business $10.80 4.91
US based company engaged in development of software applications, and provides hardware and software
based technology solutions
$10.45 0.19
US based company providing e-commerce software-as-a-service solutions for small, medium, and large
businesses
$9.90 2.39
US based company engaged in the design, development, marketing, and support of object-oriented database
management system products
$9.72 0.60
US based software and technology escrow services provider, including intellectual property and trade secret
protection
$9.50 4.32
US based company engaged in developing staffing and recruiting software solutions $8.27 1.22
US based provider of records compliance management solutions $8.00 0.60
US based provider of IT software and services for the medical, pharmaceuticals, and biotech sectors $7.63 0.47
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US based company provider of communication security (ComSec) software and services and ComSec
management software solution
$7.30 1.46
US based website software management tools company $7.00 2.00
US based company engaged in providing data-management programs, system consulting services, and
development services
$6.95 0.87
US based software and services ﬁrm engaged in providing custom application development services for bio-
pharmaceutical industry
$6.61 1.69
US based provider of embedded test and diagnostic solutions for semiconductors $6.53 0.54
US based provider of advanced solutions for monitoring transport assets and cargo in the transportation and
distribution industries
$5.95 1.36
US based company engaged in developing and marketing of imaging software development toolkits $5.50 1.53
US based company providing Application Management, Cloud Computing, Colocation, Email Hosting &
Collaboration, Managed Hosting, Software as a Service (SaaS)
$5.40 1.38
US based company that owns and operates a mobile advertising platform for advertisers and publishers $5.01 2.51
US based election solutions provider $5.00 0.06
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•
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• Legacy Software Systems

• Low Proﬁt Margins

• Flat to Low CAGR

• One and Done Revenue

• Low Intrinsic Value

• No Proprietary Technology Or IP

• No Contracts

• Small Market Size

• Low Entry Barriers

• SaaS/Cloud Software

• Higher Proﬁt Margins

• High CAGR

• Per User Per Month Recurring Revenues

• High Intrinsic Value

• All Proprietary Technology or IP

• Long Term Contracts

• Large Market Size

• Publicly Traded

• High Entry Barriers
.5x 1.0x 2.5x 5x+3.0x
Transactions $50 Million and Under
Average Valuation Range

What Say The Investors/Acquirers
Often the agreed upon purchase price is a lot of art with some science thrown in. The science helps guide the investor/
buyer on what the future value of the business should be in five years. Five years is the common hold period for venture
capital firms and private equity groups. Strategic buyers could have longer hold periods in mind but are likely to refer
back to the science used in the industry.

In addition to running analysis on past performance, acquirers of technology companies will attempt to forecast the
future performance and the expected (five years out) valuation multiples based on the initial CAGR (compounded annual
growth rates). It is this expected rate of annual growth decay that translates into what valuation multiples an investor
would consider offering today.

The chart below outlines how much revenues will expand for a hypothetical business over a five year period based on
various growth decay rates (left column). For example, if this business over the previous three years has a Present
CAGR of 70% in which history has shown an average growth decay rate of 15% (therefore 59% for Year 1 after
acquisition) the business would be on the “Expected” path and revenues would expand 6.0x. Lets assume the business
today has $5 million in gross RECURRING (very important) revenues. It would be expected to have a run rate of $30
million in five years. However, if growth decay declines 25% per year, “Low Road”, then the five year revenue expansion
would be 3.9x or a run rate of $19.5 million, a significant reduction. Put another way, it is the difference between a 4.0x
vs a 2.7x recurring revenue offer.

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If your technology business has recurring revenue, review the chart below to see where it may fall. If you would
like to know in greater detail what the expected purchase price multiple for your business could be do not hesitate
to reach out and we would be happy to provide specific details.

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Growth Decay Range Present CAGR 1 2 3 4 5 5 Yr Revenue Expansion
75% Low Road 30% 23% 17% 13% 9% 7% 1.9x
85% Expected 30% 25% 21% 18% 15% 13% 2.3x
90% High Road 30% 27% 25% 22% 20% 18% 2.7x
75% Low Road 40% 30% 23% 17% 13% 9% 2.3x
85% Expected 40% 34% 29% 24% 20% 17% 3.0x
90% High Road 40% 36% 33% 30% 27% 24% 3.7x
75% Low Road 50% 38% 28% 21% 16% 12% 2.8x
85% Expected 50% 42% 36% 30% 25% 22% 3.8x
90% High Road 50% 45% 41% 37% 34% 30% 4.9x
75% Low Road 60% 45% 34% 25% 19% 14% 3.3x
85% Expected 60% 51% 43% 36% 31% 26% 4.8x
90% High Road 60% 54% 49% 44% 40% 36% 6.4x
75% Low Road 70% 53% 39% 30% 22% 17% 3.9x
85% Expected 70% 59% 50% 42% 36% 30% 6.0x
90% High Road 70% 63% 57% 52% 47% 42% 8.2x
75% Low Road 80% 60% 45% 34% 25% 19% 4.6x
85% Expected 80% 68% 57% 48% 41% 34% 7.4x
90% High Road 80% 72% 66% 59% 54% 49% 10.4x
75% Low Road 90% 68% 51% 38% 28% 21% 5.4x
85% Expected 90% 76% 64% 54% 46% 39% 9.0x
90% High Road 90% 81% 74% 67% 60% 55% 13.0x
75% Low Road 100% 75% 56% 42% 32% 24% 6.3x
85% Expected 100% 85% 71% 60% 51% 43% 11.0x
90% High Road 100% 90% 82% 74% 67% 61% 16.2x
Estimated Future Annual Revenue Growth Rate
*Scale Venture Partners Chart

Please keep in mind the far right column is NOT a multiple for business owners to expect upon an exit. It is simply the
multiple of recurring revenue expansion over a five year period. iMerge’s experience has shown that tech firm’s growth
rate and its decay vary widely. Many tech companies may have an initial growth rate that well exceeds 100% but find
itself settling down as it matures.

It is particularly important to note that there is a large difference in exit value between recurring and non recurring
revenues. In addition, if five years ago a tech business’ growth rate for that year was 150% and today its 20% it is
difficult to convince any buyer that the business growth will exceed 100% some day again under new ownership and
obtain present value cash for that “blue sky” potential. It is possible that the new owner could inject capital or bolt on
additional acquisitions that alter the path of the CAGR. A good way to participate in that potential upside is to retain
some equity to carry forward. (dilution risk is possible)

So what does all this mean to business owners and the offers they are likely to see when exploring an exit? Private
equity firms are looking to extract 5x - 10x return on their initial investment. Therefore the sector has to be red hot and
the tech company will need to show its ability to continue to get way out in front with a proprietary, high entry barrier
service with lots of differentiation and recurring revenue growth (right side of the bell curve above). Which typically
means a CAGR greater than 70% and growth decay of only 10% year over year.

On the other hand, financial and strategic investors have a smaller risk appetite which means the more mature, albeit
lower growth, technology companies can be appealing. Correspondingly, lower growth rates mean lower multiples.

Other Factors Impacting Valuations
As you have seen above there are many variables that go into the valuation of a software business. In addition to these,
there are several other factors that can influence multiples such as current economic, tax, interest rate, political and
regulatory conditions. An improving environment may raise overall investment confidence levels spurring increases in
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multiples paid across the entire bell curve range. Likewise decreases in conditions cause multiples along the entire bell
curve to decline.

Cool or Hot Industry Sector
Just as there are business cycles, growth cycles and more, there exists industry sector cycles. These waves of sector
intensity come and go, remember the ring tone craze? Today its all about mobile and SaaS and cloud technologies. If a
seller’s business type falls within these rising tides its often advantageous to consider an exit as multiples rarely remain
at high levels indefinitely.

Deal Term Factors
“Sellers may certainly name their price which buyers may certainly pay under their terms” Anonymous
Depending on where a business falls on the bell curve based on its internal circumstances narrows down the range of
the potential transaction multiples paid. Perhaps best thought of as a mini bell curve within. This mini bell curve range
essentially boils down to the amount of “skin in the game”, or risk the seller maintains. All cash transactions will always
show up on the left side of the bell curve. On the right will be much higher multiples but less cash at close with longer
term payouts.

Inside the Transaction Details
It is important to recognize that the purchase price noted in a press release does not tell the entire story. Learning the
terms of the deal itself allows sellers to get clear insight to the true valuation. Just because the press release says $100
million doesn’t mean that was all cash. It could very well have been $20 million in cash with the assumption of $30
million in debt and $50 million in stock of the acquiring entity.

Learn the Specifics for Your Business
iMerge Advisors is well versed on the details of many transactions and is happy to confidentially provide specific insight
as to the potential market valuation for your technology business.

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About iMerge Advisors
Since 2001, M&A investment banking firm, iMerge Advisors has focused exclusively on small to mid-market technology
companies within the internet, application software, software as a service (SaaS), and cloud computing verticals that are
both growing and profitable with revenues exceeding $2 million on up to $50 million.  
 
iMerge Advisors has provided exemplary mergers & acquisitions and investment banking services to those technology
business owners wishing to position and capture the highest values for their businesses. Perhaps you have received an
unsolicited approach from a buyer or you have reached any of the critical stages of business growth and question if it’s
the right time to sell your business. iMerge Advisors can provide valuable insight allowing you to choose the best
strategy going forward. Going beyond the simple review of profit and loss statements, iMerge Advisors looks at a wide
range of internal and external variables surrounding your internet, software or technology business. Some of these
factors include a macro review of current market conditions, personal goals and objectives as well as the micro review of
valuation expectations, deal structure, tax implications, and your management and employee concerns. Our philosophy
is to develop long-term partnerships in which we provide expert guidance in positioning your technology business for an
exit that meets your goals.

Visit us as www.imergeadvisors.com to learn more.
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701 5th Avenue 42nd Floor | Seattle Washington
98104
T 888.882.4324 F 617.830.1660
www.imergeadvisors.com

Business Valuation Multiples Paid for Technology Companies

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