Category Archives: Valuation

I’m not sure which better explains my recent decrease in blog post frequency: bit.ly or being out of the office. Either way, I wasn’t kidding a few weeks ago when I said I’m changing my sharing pattern. Much as popular business authors take one good idea and inflate it into a book, I now realize (thanks to bit.ly) that I have been taking what could have been one good tweet and inflating it into a blog post. While I’ve not drawn any definitive conclusions, thus far I’d say I’m sharing many more articles with significantly less effort than before.

Going forward, my guess is that steady state will be ~2 posts/week (instead of ~5), but those posts will supplemented by 5-10 tweets/day (RSS feed here). Because of this, I’ve added the Tweet Blender widget to my home page, made it quite large, and have set it up to include not only my direct tweets (@ramblingman) but all tweets that include the word ramblingman to catch re-tweets and such. This will probably result in the inclusion of odd items from time to time — apologies if anything offensive comes up — and if this becomes a problem I’ll change the setup.

I’ve re-enabled Zemanta after turning it off for several quarters because I found it too slow to justify its value. They’ve put out a new release, and since I’m interested in all things vaguely semantic web, I figured I’d give it another try. Finally, I’m still considering renaming the blog to either Kellblog or Kellogic, but doing so is a daunting project (think of all the links that break) which I’m not yet ready to tackle at present. So, watch this space.

The purpose of this post, however is to present highlights from the Software Equity Group’s 2Q09 Software Industry Equity Report. Here they are:

• Consensus IT spending forecasts for 2009 predict 8% decrease in overall spending
• Top five CTO spending priorities from the Goldman Sachs 3/09 survey: cost reduction, diaster recovery, server virtualization, server consolidation, data center consolidation
• The SEG software index had a 23.7% positive return, bouncing back from a decline in 1Q09
• Median enterprise value (EV) / sales = 1.4x, up from 1.2x the prior quarter
• Median EV/EBITDA = 9.4x, up from 7.7x the prior quarter
• Median EBITDA margin = 14.9%
• Median net income margin = 3.9%
• Median TTM revenue growth = 5.2%
• Baidu and SolarWinds topped the EV/sales charts with values of 16.2x and 10.0x revenues, respectively
• The great software arbitrage continues with companies >$1B in revenues having a median EV/sales of 2.2x while those <$100M have a mean of 0.7x. This theoretically means that the median big company can buy a median small one and triple its value overnight.
• Database companies median EV/sales was 1.8x
• Document/content management companies median EV/sales was 2.4x
• Median SaaS vendor EV/sales was 2.6x, suggesting that $1 of SaaS revenue is worth $1.70 of perpetual revneue. (Though I worry the overall average includes SaaS so this could be understating it.)
• Four software companies went public in 2Q09 raising, on median, $182M with an EV of $814M, an EV/revenue of 3.6x, and a first-day return of 17.3%
• Five companies remain in the IPO pipeline with median revenues of $58.7M, net income of -$2.2M, and growth of 46.4%
• 285 software M&A deals were done on the quarter with $3.1B in total value. This was down from 296 deals in the prior quarter worth $7.3B. (The lowest total value in the past 13 quarters.)