26.2.2024
Our quarterly SaaS valuation insights 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 Q4/2023.
Distinguishing itself from other comparable indices, TSI primarily comprises small to mid-sized public SaaS companies in the Nordic and European regions. It includes 133 companies, with 38% headquartered in the Nordics, 23% in other parts of Europe, 29% in the United States, and roughly 10% 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
Upward pressure in public SaaS valuation multiples: We expect to see an increase in the valuation multiples for publicly traded SaaS in the short-term, particularly as further rate hikes seem unlikely, and the market has already factored in several rate cuts in H2/2024.
Slower growth across the board: We are noticing a general slowdown in growth across various sectors as companies encounter challenges in acquiring new customers while also striving to retain existing ones, a task that appears to demand more attention compared to recent years. The move towards enhancing margins is only partially responsible for this subdued growth.
Shifting paradigm: Valuations for SaaS companies are more closely tied to capital efficiency and profitability rather than sheer growth. The Ro40 and similar composite metrics are more relevant than ever to sanity-check valuation multiples. Market outperformers continue to command premium valuations and trade at 4.0x their projected 2024 sales.
Nordic SaaS M&A activity remained high through 2023: Financial investors have been highly active, continuing to deploy capital from funds raised during peak period. The principle of scarcity economics remains relevant, and the pursuit of top-tier opportunities can result in outsized premiums. Despite a more demanding environment, M&A activities persist. The median EV/Sales multiple was approximately 5.0x for Nordic SaaS transactions in 2023. Which offers a good segue into our next key observation.
Disconnect between public and private valuations: The substantial correction that led to a decline in public SaaS valuations has resulted in a noticeable pricing gap between public and private assets. This situation has fostered a favorable environment for sponsor-driven take-private transactions. For instance, Q-Free, a Norwegian global intelligent transportation system technology provider, was acquired at a premium exceeding 100% of its market capitalisation. Currently, the TSI is trading at an EV/LTM Sales ratio of 3.2x, which is 36% lower than the median of 5.0x EV/Sales for Nordic SaaS transactions completed in 2023. We anticipate that this trend will exert further upward pressure on the valuations of small and medium-sized public SaaS companies, especially those with solid fundamentals that have managed to grow profitably despite the challenging environment but are still priced significantly below their private counterparts.
Summary: Key observations of Q4/2023
TSI SaaS valuation multiples have hovered close to their 1-year average throughout 2023. The EV/LTM Sales multiple for TSI settled at 3.2x in Q4/2023, well below the 5-year average of 5.8x (the high valuation multiple driven by high sales growth and profitability projections during the Covid-19 peak).
In 2023, we saw multiple public SaaS companies being acquired at significant premiums. This indicates that many public SaaS companies are starting to look highly attractive given their low valuation levels regardless of solid fundamentals, attracting interest from strategic and financial buyers aiming to capitalise on pricing discrepancies.
Despite the market turbulence witnessed in 2023, the M&A activity in the SaaS sector remained high, and as of writing this article, we have already witnessed a positive trend in M&A activity across the board.
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