22.10.2024
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 Q3/2024.
Distinguishing itself from other comparable indices, TSI primarily comprises small to mid-sized public SaaS companies in the Nordic and European regions. It includes 124 companies, with 38% headquartered in the Nordics, 23% in other parts of Europe, 31% in the United States, and roughly 8% 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
The drop in aggregate growth figures, combined with an uncertain outlook, is driving multiples lower despite favorable interest rate trends: Throughout Q3/’24, SaaS valuation multiples have remained close to their one-year averages, and there has been no significant change in Nordic public valuations since Q3/’22. At present, the median EV/LTM Sales multiple for TSI is 3.2x.
The valuation gap is widening across quartiles, with high performers showing significantly higher valuations: As noted in previous reports, profitability continues to take precedence over growth as the main driver in Ro40 figures. However, the higher-performing quartiles see particularly elevated valuations, with the top quartile boasting a median Ro40 of 47%, now trading at 6.5x, a sharp rise from 4.9x in the previous quarter.
In Q3/2024, valuations of vertical and horizontal SaaS companies began to diverge, with vertical SaaS now trading approximately 40% higher than its horizontal peers despite nearly identical median Ro40: Over the past two years, valuations of public vertical and horizontal SaaS companies had gradually converged. However, Q3/2024 marks the first time since H1/2021 that vertical SaaS valuations have significantly outpaced those of horizontal SaaS.
Nordic SaaS M&A activity saw a jump in Q3/2024: Deal volume saw a slight increase in Q3/2024, and we anticipate this positive trend will continue into Q4/2024. As highlighted in the Q2/2024 report, most investors had expected an uptick in deal activity toward the end of 2024 and into early 2025. Q3/2024 recorded 78 completed transactions, making it the most active quarter of the year so far. Several exit processes initiated earlier in 2024 are projected to close in Q4/2024, which should further stimulate activity across the Nordics.
Nordic SaaS transactions facilitated by Translink Corporate Finance: We analyzed proprietary data from recent Nordic SaaS transactions facilitated by Translink Corporate Finance. Our findings indicate that SaaS companies in the Nordics have traded at approximately 3x to 6x EV/ARR, depending on financial performance and the specific circumstances of each deal. All transactions included were majority stake deals.
Deeper dive: As emphasized in our SaaS-related publications, valuation is determined by a combination of underlying performance, future outlook, competitive positioning and process. The companies that opted for M&A deals were in strong financial health, experiencing double-digit growth with improving margins prior to the transactions. Upon analyzing these businesses, vertical SaaS companies commanded slightly higher multiples compared to their horizontal counterparts, driven by stronger Rule of 40 figures. This aligns with the broader public market trends, as outlined on the previous page, where vertical SaaS companies receive higher valuations than horizontal SaaS firms. While not included in this analysis, cohort metrics also play a significant role in explaining valuation variations, as demonstrated in our report where incorporating NRR enhances the explanatory power of the EV/Sales to Ro40 regression.
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 buyers, 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