Business Consulting firm Frankfurt Partners (www.frankfurtpartners.com) released the third edition of its biannual Software as a Service (SaaS) Valuation and Metric Report. SaaS remains a relatively new business model but it has a great potential for growth. As of 2010, it is estimated to have reached less than 20% of its potential market.
The largest proportion of SaaS customers so far are SMEs and medium-sized companies with relatively little break-through into the enterprise market. However, the level of adoption by enterprises is starting to increase rabidly. By the end of 2010, 80% of U.S. organizations will use at least one SaaS-delivered application for business use.
“The M&A Activities have picked up in the last 12 month as a array of companies are seeking to capitalize on the rising demand for SaaS solutions and trying to position themselves as a strategic player in the SaaS market”, says Rene Meister. “Given the attractive characteristics of SaaS companies from a financial perspective (i.e. strong growth, revenue visibility), it is not surprising that M&A activity for SaaS vendors has been strong.”
This report includes extensive benchmarking data about the SaaS Market. It is an invaluable resource for metrics and benchmarks for running a business based on the SaaS business model.
Reports key findings:
•Although many more companies are entering the SaaS market, most of these are providing SaaS as an extension to their existing product line.
•With a total asset value of $2,460 million stated in its end 2009 balance sheet, Salesforce is more than three times the size of its nearest rival.
•SaaS providers require around 50-70% more capital than traditional software companies before they achieve a positive cash flow.
•Pure play SaaS providers are the most valuable out of 23 categories of software companies.
•Mergers and acquisition valuations have generally fallen from an average of 6.2 times revenue in 2007 to 5.3 times in 2010. Overall Deal sizes have been fallen too.
•Successful pure play SaaS providers such as Netsuite and Salesforce.com are valued much higher then companies that still have traditional business models.