18.07.2024
Our quarterly SaaS valuation insights report focuses on the Translink SaaS Index (”TSI”), offering a comprehensive analysis of index constituents, SaaS M&A trends, and the wider European SaaS market. This update aims to deliver our primary insights and observations concerning the mid-market SaaS valuation landscape in Q2/2024.
Distinguishing itself from other comparable indices, TSI primarily comprises small to mid-sized public SaaS companies in the Nordic and European regions. It includes 130 companies, with 38% headquartered in the Nordics, 22% in other parts of Europe, 31% in the United States, and roughly 9% in other global markets. Importantly, our index intentionally excludes large-cap SaaS companies.
We firmly believe that our proprietary index serves as a valuable benchmark for assessing the valuations of small and mid-sized SaaS firms, which are typically the focus of transactions within our core European markets.
SaaS valuation insights report excerpts
No significant change in Nordic public valuations since Q3/2022: SaaS valuation multiples have remained subdued since late 2022. However, we expect valuations to revert closer to the long-term average over the next few quarters. Currently, the EV/LTM Sales multiple for TSI stands at 3.4x, significantly below its five-year average of 5.7x.
Profitability has overtaken growth as the primary factor in the Ro40 figure: The focus on demonstrating healthy profitability, coupled with challenges in acquiring new customers, has made profitability the main component of Ro40. This trend is widespread, with only 5% of index constituents achieving growth over 40% in the last twelve months ending in Q1/’24, down from 13% in Q1/’23. Upper quartile constituents are trading at 4.9x. The median Ro40 figure for these companies is 45%, with profitability accounting for over two-thirds of this figure.
The performance and valuations of vertical and horizontal SaaS companies have converged over the past two years: As we conclude Q2/2024, the spread between these categories is minimal. This convergence is due to slower growth across both categories and nearly equal median Rule of 40 figures in Q2/’24 (32% vs 27%). At the end of Q2/’24, vertical SaaS companies traded only about 20% higher in EV/LTM Sales compared to their horizontal counterparts.
Nordic SaaS M&A activity remained robust in Q2/2024: The Nordic SaaS M&A market stayed strong during the first half of 2024, despite comparisons to peak years. The median EV/Sales multiple for deals executed in H1/2024 was slightly lower compared to 2023 (4.5x in H1/’24 vs 4.7x in 2023). Achieving double-digit multiples in today’s market has proven challenging, even for high-quality assets, but such deals are still occurring. It is entirely dependent on performance and outlook.
SaaS Fundraising Spotlight: Nordic SaaS funding rounds have cooled from their peak levels in 2020 and 2021. In H1/2024, we observed fewer but larger rounds compared to the same period last year. AI-first B2B SaaS companies were particularly prominent, attracting most of the capital invested during this period. The median investment size increased from around $1 million to $3 million (H1/2024 vs 2023), and the average investment size rose from $5.7 million to $7.7 million, largely driven by a few $40 million+ rounds. We expect AI-first companies to dominate, with many investors increasingly putting more emphasis on AI capabilities.
Download our SaaS valuation insights report
In our quarterly SaaS valuation insights report, we strive to provide an overview of the latest developments and trends related to valuations accompanied with our proprietary insights and learnings from live projects and observations from engaging with both clients, strategic players, and investors in our cross-border advisory practice.
The full SaaS valuation insights report can be downloaded by clicking the link below, and the report will also be published on our website on a quarterly basis.
Tero Nummenpää, Partner
Ruben Moring, Partner
Juuso Marttinen, Partner
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