Cobalt Benchmark Report

Transcription

1 Cobalt Benchmark Report UK & US Application Software Sector: Key Company Performance Metrics May 2013

2 Introduction Welcome to this edition of the Cobalt benchmark report, a review of key company valuation and operating metrics in the UK and US application software sector. By reviewing sector averages, our aim is to provide a set of software industry benchmarks against which individual company performance can be measured. In particular, we look at the relationship between valuation and revenue growth expectations, its influence on the spending of companies, and the impact on short term profitability. For comparison purposes, we ve grouped companies covered in the report into one of four categories: US publicly quoted application software companies operating a pure Software as a Service model. US publicly quoted application software companies with a strong focus on one (or a small number of) vertical market(s) e.g. healthcare, financial services etc. US Horizontal US publicly quoted application software companies selling solutions across a wide range of verticals. UK Small+Mid Small and medium sized (by market capitalisation) UK publicly quoted application software companies. We ve grouped UK companies in this manner because sample sizes do not permit a breakdown into horizontal versus vertically focused companies. Metrics covered in the report include R&D spend, sales and marketing spend, revenue per employee, operating margins, revenue growth expectations and valuation multiples. We d be happy to discuss the findings of this report in more detail. Please contact: Paddy MccGwire pmccgwire@cobaltcf.com +44 (0) Jeremy Tracey jtracey@cobaltcf.com +44 (0)

3 Summary: Growth versus Profitability Median Revenue Multiple 6.0x 5.0x 4.0x 3.0x 2.0x 1.0x (2) US Horizontal UK Small + Mid Cap R&D Spend (% Revenue) 25.0% 20.0% 15.0% 10.0% 5.0% US Horizontal EBITDA Margin 25.0% 20.0% 15.0% 10.0% 5.0% (3) US Horizontal UK Small + Mid Cap 0.0x 0% 10% 20% 30% Median Forecast Annual Revenue Growth (1) 0.0% 10.0% 20.0% 30.0% 40.0% Sales & Marketing Spend (% Revenue) 0.0% 0% 10% 20% 30% Median Forecast Annual Revenue Growth (1) With higher growth expectations, SaaS companies are valued at a premium to the rest of the market. Conversely, with lower growth expectations, UK companies are valued at a discount. SaaS companies, with higher growth forecasts, are spending a higher percentage of revenue on sales and marketing. Unsurprisingly, vertically focused application software companies spend less than horizontally focused ones on customer acquisition. Higher growth companies are trading off short term profitability for growth. (1) FY13-14 (2) Trailing revenue (3) Positive EBITDA only Median Revenue Multiple Median EBITDA Multiple EBITDA Margin Revenue Per Employee ($000's) R&D Spend (% Revs) S&M Spend (% Revs) Median Forecast Revenue Growth (FY13-14) 5.6x 47.9x 10.9% % 38.0% 22.3% 3.5x 14.0x 22.1% % 21.2% 8.0% US Horizontal 2.9x 15.6x 18.8% % 31.8% 10.5% UK Small+Mid 1.9x 9.4x 22.6% 194 n/a n/a 7.4% Definitions: US publicly quoted application software companies operating a pure Software as a Service model. US publicly quoted application software companies with a strong focus on one (or a small number of) vertical market(s) e.g. healthcare, financial services etc. US Horizontal US publicly quoted application software companies selling solutions across a wide range of verticals. UK Small+Mid Small and medium sized (by market capitalisation) UK publicly quoted application software companies. Source: Cobalt/ S&P Capital IQ

4 Sector Valuation Metrics: Revenue Multiples Median Revenue Multiple (1) 8.0x 6.0x Over recent years SaaS company revenue valuation multiples have outperformed the rest of the application software sector. Median revenue multiples May 2013: 5.6x 4.0x 3.5x 2.0x US Horizontal 2.9x 0.0x UK Small & Mid 1.9x US Horizontal UK Small + Mid Cap (1) Trailing revenue Source: Cobalt/ S&P Capital IQ

5 Sector Valuation Metrics: EBITDA Multiples Median EBITDA Multiple (1) 70.0x SaaS company EBITDA valuation multiples are more volatile because companies in this sector are earlier in their corporate evolution. Median EBITDA multiples May 2013: 60.0x 50.0x 47.9x 40.0x 30.0x US Horizontal 14.0x 20.0x 15.6x 10.0x 0.0x UK Small & Mid 9.4x US Horizontal UK Small + Mid Cap (1) Trailing EBITDA Source: Cobalt/ S&P Capital IQ

6 Disclaimer Important notice The information contained in this document has been compiled by Cobalt Corporate Finance LLP ( Cobalt ) and includes material obtained from published sources which Cobalt use regularly but has not been verified. No reliance may be placed for any purposes whatsoever on the contents of this document or on its completeness. No representation or warranty, express or implied, is given and no responsibility or liability is or will be accepted by or on behalf of Cobalt or by any of its partners, employees, agents or any other person as to the accuracy, completeness or correctness of the information contained in this document or any other oral information made available and any such liability is expressly disclaimed. The information contained in this documents should not be construed as an offer or solicitation to buy or sell any financials securities. This document and its contents may not be reproduced, redistributed, or modified without the prior written consent of Cobalt.

7 Cobalt Corporate Finance LLP - 52 Brook Street, London, W1K 5DS, UK T +44 (0) E advice@cobaltcf.com W Cobalt Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority