Is now the right time to sell your business?
If you follow the public stock markets, then you might be reaching for a bottle of Gravol these days. The markets are going through some pretty wild swings at the moment driven by factors such as investor concerns about potential interest rate increases, US-China trade battles, Brexit uncertainty and a general consensus that the current bull market must come to an end sooner rather than later.
The Bessemer SaaS index is the closest public proxy we have to track valuation trends for tech companies. As you can see in the graph above, SaaS valuations have had a really strong run, significantly outperforming the broader stock market. There are now 45 public SaaS companies worth over $1B.
Looking at Price / Revenue multiples, the Bessemer index companies trade at a range of 3.2x — 19.9x 2018 revenues (median of 8.6x revenues). For every 10% of revenue growth, these companies are generating a valuation gain of 2.7x.
These are rich valuations by any benchmark. Couple this with some other data points:
- Bull markets typically last about five years. We are coming to the end of year ten on this one
- Between strategic buyers and financial buyers (more or them in a minute), there is more capital available to pay for acquisitions than ever before. Recent US tax changes enabling strategics to bring foreign cash back into the US makes it even more compelling for those companies to buy.
- Financial (private equity) buyers currently have $1.2 trillion in capital that they are looking to deploy in the next 18–24 months. They are a growing force in the acquisition market and have growing appetite for SaaS businesses.
- While exit counts year-to-date are similar in 2018 vs. 2017, the median SaaS exit value is 50% higher in 2018 vs ’17.
Put all of these data points together and it sure feels to me that now is a good time to think about exiting your business. Valuations and capital are peaking. The macro environment is volatile.
As you’re finalizing your plans for 2019, give some thought to positioning yourself with buyers this coming year.
