Contact: Scott Denne
Advent International said Monday that it will hand over $1.6bn for software provider UNIT4. The announcement, however, was almost lost in the hoopla surrounding the opening of Dreamforce, salesforce.com’s annual customer and developer lovefest. The two events – along with the buzz they generated, respectively – go a long way toward explaining the chasm between valuations for traditional enterprise software vendors and their SaaS counterparts.
Advent’s proposed take-private values the Dutch ERP vendor at 2.7x its trailing 12-month revenue. That’s a far cry from the rich 10.3x valuation that salesforce.com fetches on the public market. We’re not picking on UNIT4. In fact, it secured a slight premium to the median price-to-sales multiple of 2.1x in comparable purchases of software firms by PE shops. (On another – perhaps more relevant – measure, Advent is paying basically 14x EBITDA for UNIT4, right in line with precedent transactions.)
Like many other traditional software firms, 33-year-old UNIT4 hopes to transition its business to include more SaaS revenue – part of the motivation for going private. From 2011 to 2012, its (still small) SaaS business increased 25% and accounted for 10% of its sales. The reason for the messy and complicated transition to SaaS? Growth.
A recent survey by ChangeWave Research, a service of 451 Research, found that 32% of respondents plan to increase their SaaS spending over the next six months – that’s about twice as high as the percentage who forecast an increase in overall software spending. That trend is what has boosted shares of salesforce.com to roughly their all-time high, some 1,300% higher than where they came public in mid-2004. Salesforce.com is expected to report fiscal third-quarter sales growth of about 33% after the closing bell on Monday.
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