Boston, MA – Capstone Headwaters released its August 2020 SaaS & Cloud Report today, reporting merger and acquisition (M&A) activity fell in Q2 2020 to 473 deals for the quarter, better than Capstone Headwaters expected, as deal activity remained surprisingly high though deals tended to be smaller transactions at weaker multiples. M&A revenue multiples of 3.3x for private targets and 3.7x for public targets are down from 2018 and 2019 levels with Q2 hitting some of the lowest quarterly numbers on record. Over the last twelve months, M&A activity reached a record 2,176 deals totaling over $150 billion despite a recent slowdown in deal activity and decline in public deal dollar volume.
Public company median multiples jumped to record levels, hitting 7.5x revenue and 31.9x EBITDA as investors flocked to SaaS businesses. Enterprise SaaS & Cloud 170 stock prices jumped by 38.3%, beating the NASDAQ’s 30.6% gain as SaaS and technology companies quickly rebounded from Q1 declines. Public valuations have rebounded from lows relatively quickly with 55% of SaaS companies above pre-COVID valuations but the risk of another correction still looms. Median revenue growth of 20.5% is a small drop but a further slowdown is expected with just 12.7% growth projected over the next twelve months. Median EBITDA margin of 13.0% is approaching highs but may pull back as Q2 and Q3 earnings results release.
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