02 Apr’14

Churn Is King: How SaaS Business Models Affect Software Company Valuations

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Churn Is King: How SaaS Business Models Affect Software Company Valuations

Efrat Kasznik Foresight Valuation

Efrat Kasznik

In 2012 Oracle CEO Larry Ellison announced the availability of Oracle Cloud, declaring cloud computing “a fantastic opportunity for technology companies to help customers simplify IT”. Software vendors across the world are embracing the ‘software as a service’ (SaaS) cloud-based business model in growing numbers. According to San Diego-based investment firm Software Equity Group, SaaS software revenues will likely represent approximately 25% of the overall
software market in the next five years. Research firm Gartner estimated that global spending on
SaaS will reach $22.1 billion by 2015. Some software vendors are converting their software delivery and revenue models to SaaS, while others acquire SaaS companies to gain access to this market. Ad
obe is a recent example of that shift: in May 2013 the company announced that it was halting future updates of its flagship product, Adobe Creative Suite, in favour of expanding the subscription-based Adobe Creative Cloud. On the M&A front, SaaS M&A transactions grew 25% last year and the median SaaS exit multiple was more than double that paid for traditional, on-premise software targets, according to the Software Equity Group. Continue reading

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