PE Takes Another Rule of 40 SaaS Vendor Private at 6x. We’ve Analyzed the Last 8 SaaS Take Privates, and Predicted Who’s Next!
Across eight recent/public SaaS take-privates (Dayforce, Olo, Smartsheet, Squarespace, SolarWinds, Couchbase, Sapiens, MeridianLink), the pattern is clear: PE is capitalizing on the current unsexy sentiment and thus value-pricing for vertical SaaS, despite sound fundamentals:
KPIs: Growth ~12% YoY (median 11%), Rule of 40 ~32%, Gross Retention ~93%, NRR ~109%
Valuation: ~6.1x revenue on average (median 6.3×); EV/EBITDA where disclosed ≈ 20–25×
Vs. Prior Peaks: Take-out prices averaged ~84% of ATH (median ~86%) — with wide dispersion (Olo ~36% of ATH; Couchbase/Squarespace >100%)
Why Go Private: nearly all of the all-time-highs (ATH) were in 2021, and even with a 47% premium, they’re still going private only at 84% of their ATHs - 4 years later!
Translation: While public market investors seek AI at all costs (Palantir at ~110x revenue), savvy PE investors grounded in fundamentals see buying opportunities of mission-critical SaaS leaders at value pricing, with a clear line of sight to 2-3x, in 3-5 years.
This then raises the question, which undervalued yet high-quality SaaS companies are next to be taken private by Thoma or Vista? If I am to speculate, the following are in their crosshairs as we speak. PLEASE NOTE: THIS IS NOT INVESTMENT ADVICE!
Across these potential take privates, a few things jump out immediately:
Growth: stronger than those taken private, with better gross retention, the same average NRR, and nearly the same average rule of 40 at 30%
Valuation: at ~5x revenue these companies would line up right around 6x when factoring in the take private premium
YTD Stock Performance: averaging negative 15%, while the Nasdaq is up 12%
Have and Have Nots: PE, of course, will try cherry picking the best assets at the lowest relative valuations.
For example, Hubspot has seen NRR trending down and their NRR is the 2nd lowest on the list, yet still has the highest revenue multiple.
Similarly, Tenable has seen NRR trending down as well, yet it may be stabilizing at 107% while only trading at 4x revenue with 33% rule of 40
Twilio, on the other hand, has seen NRR increase, to 108% up from 102% a year earlier, which is probably why their stock price is only down 2% YTD compared to the average of 15%
Public SaaS > Overpriced Private SaaS: there are 100s of private SaaS unicorns that remain overvalued from peak ZIRP. For PE to make $ on such a deal, per above, they theoretically can pay no more than 5-6x revenue for such a company, and that company must have even stronger KPIs than those above, to make it an attractive IPO candidate (think Figma) for their own liquidity.
It will be fascinating to see how this plays out over the coming quarters, specifically whether the unsexy sentiment of SaaS persists or public market investors gradually rotate back into the sector, encouraged by outcomes such as Wiz or Figma. Similarly, what do these take-private deals mean for the private markets, and will these transactions reverberate downstream, level-setting valuations from the top down? Only time will tell.