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The Secret SaaS to Valuation

Bäckström, Axel LU ; Winnerblad, Melker LU and Tångring, Erik LU (2023) IBUH19 20241
Department of Business Administration
Abstract (Swedish)
This thesis investigates the applicability and legitimacy of the relative valuation method within the Software-as-a-Service industry by comparing the implied enterprise values of SaaS companies in transactions to values estimated using peer group valuation multiples. To achieve this, a sample of 66 Nordic M&A and private placement transactions completed between 2020 and 2024 were selected for analysis. The main finding of the research is that the industry-specific multiple performs significantly better than traditional multiples for the studied companies. Another finding is that, in general, traditional valuation multiples have less explanatory power for SaaS companies compared to traditional companies, likely due to the unique... (More)
This thesis investigates the applicability and legitimacy of the relative valuation method within the Software-as-a-Service industry by comparing the implied enterprise values of SaaS companies in transactions to values estimated using peer group valuation multiples. To achieve this, a sample of 66 Nordic M&A and private placement transactions completed between 2020 and 2024 were selected for analysis. The main finding of the research is that the industry-specific multiple performs significantly better than traditional multiples for the studied companies. Another finding is that, in general, traditional valuation multiples have less explanatory power for SaaS companies compared to traditional companies, likely due to the unique subscription-based business model and recurring characteristic of revenue within the industry. These findings imply the need for a tailored approach in valuing SaaS companies, where traditional valuation multiples yield inadequate results. Instead, investors and valuation practitioners should consider the specific dynamics of the SaaS industry and select value drivers for relative valuation accordingly. Suggested future research includes exploring other multiples in the SaaS industry as well as other contexts, such as the large American SaaS market. (Less)
Please use this url to cite or link to this publication:
author
Bäckström, Axel LU ; Winnerblad, Melker LU and Tångring, Erik LU
supervisor
organization
course
IBUH19 20241
year
type
M2 - Bachelor Degree
subject
keywords
SaaS, Relative Valuation, Annual recurring revenue
language
English
id
9166951
date added to LUP
2024-08-07 17:36:21
date last changed
2024-08-07 17:36:21
@misc{9166951,
  abstract     = {{This thesis investigates the applicability and legitimacy of the relative valuation method within the Software-as-a-Service industry by comparing the implied enterprise values of SaaS companies in transactions to values estimated using peer group valuation multiples. To achieve this, a sample of 66 Nordic M&A and private placement transactions completed between 2020 and 2024 were selected for analysis. The main finding of the research is that the industry-specific multiple performs significantly better than traditional multiples for the studied companies. Another finding is that, in general, traditional valuation multiples have less explanatory power for SaaS companies compared to traditional companies, likely due to the unique subscription-based business model and recurring characteristic of revenue within the industry. These findings imply the need for a tailored approach in valuing SaaS companies, where traditional valuation multiples yield inadequate results. Instead, investors and valuation practitioners should consider the specific dynamics of the SaaS industry and select value drivers for relative valuation accordingly. Suggested future research includes exploring other multiples in the SaaS industry as well as other contexts, such as the large American SaaS market.}},
  author       = {{Bäckström, Axel and Winnerblad, Melker and Tångring, Erik}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Secret SaaS to Valuation}},
  year         = {{2023}},
}