2024 SaaS Industry Mid-Year Report

SaaS SEMI-ANNUAL REPORT

Summer 2024

Index

Macroeconomic Outlook

SaaS Industry Overview

SaaS Financing

SaaS M&A Activity

Looking Ahead

Case Studies

Behind this Report

About FE International

Macroeconomic Overview

The global economy is expected to settle into a pattern of "steady" growth. Despite recent challenges such as high interest rates, inflation, and geopolitical tensions, the 3.2% growth rate for 2024 and 2025 indicates resilience as we settle into a new normal after the pandemic. The economic pick-up is not uniform. Developed economies will likely see a slight acceleration from 1.7% growth in 2024 to 1.8% in 2025, while emerging markets and developing economies' growth rates are anticipated to remain stable. There's a sense of optimism emerging among business leaders. In the US, CEO confidence has risen for two quarters in a row, with recession fears fading significantly. European CEOs and China-based CEOs of US and European companies are also slightly more optimistic, with a more positive outlook on the short-term economic situation. However, cautious optimism in encouraged – market projections could shift notably depending on the outcome of the upcoming US presidential elections. Global Economy Settles Into Cautious Growth Pattern

Real GDP Growth (% YoY)

Forecast

4.2%

3.6% 2.3% 4.7%

3.2% 1.8% 4.2%

3.2%

1.7%

2018 2019 2020 2021

2022 2023 2024E 2025F

World

Advanced economies

Emerging market and developing economies

The Conference Board Measure of CEO Confidence

Q4 2023

Q2 2024

H2 2023

H1 2024

H2 2023

H1 2024

United States

Europe

China

Source: IMF World Economic Outlook, July 2024. The Conference Board. Note: Measure of CEO Confidence is a barometer of the health of the US economy from the perspective of US chief executives.

To combat inflation, central banks raised interest rates to levels considered restrictive to economic growth. However, with global inflation rates falling and projected to reach 4.4% by 2025, the IMF suggests these interest rates are nearing their peak. This normalization in interest rates and inflation eases the financial burden on businesses and consumers, potentially spurring an uptick in consumer activity and further investments from businesses. Leading economists are forecasting that advanced economies will achieve their inflation targets sooner than emerging markets. This recovery could be due to a combination of factors, such as stronger economic fundamentals and more robust policy responses. In recent months, the Swiss National Bank (SNB) and European Central Bank (ECB) lowered their interest rates. This is a positive sign for further cuts, with other markets following the impact of these rates closely. Inflation & Interest Rates Stabilizing

CPI Inflation Rate (%)

Forecast

8.2%

4.4% 6.0%

3.6% 2.0% 5.0%

5.9%

2.1%

2.7%

2018 2019 2020 2021

2022 2023 2024E 2025F

World

Advanced economies

Emerging market and developing economies

Interest Rate (%)

5.4% 4.3% 5.3%

Recent rate cuts by SNB & ECB

0.1% 1.3%

Jan-20 Nov-20

Oct-21

Aug-22

Jul-23

Jun-24

US (Fed)

Euro Area (ECB)

United Kingdom (BoE)

Japan (Bank of Japan)

Switzerland (SNB policy rate)

Source: IMF World Economic Outlook, July 2024, Interest rates as per central bank data of respective regions. Note: ECB = European Central Bank, SNB = Swiss National Bank.

Venture Capital & Private Equity Investment Outlook

VC Dry Powder ($B) by Vintage

PE Dry Powder ($B) by Vintage

$0 B $100 B $200 B $300 B $400 B $500 B $600 B $700 B $800 B 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

$0 B $200 B $400 B $600 B $800 B $1,000 B $1,200 B $1,400 B $1,600 B $1,800 B

2023 2022 2021 2020 2019 2018 2017 2016

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Dry powder for VC and PE has reached record levels, exceeding $700 billion for VCs and $1.5 trillion for PEs. This abundance of available capital is particularly appealing for SaaS companies, offering the potential for substantial investment. Additionally, SaaS-focused VCs are on the rise, with several significant fundraising rounds targeting various ecommerce segments. However, converting this dry powder into actual investments may rely on the resurgence of strong exit opportunities for VCs through IPOs or M&A activity. Overall, the current environment presents a potential advantage for VCs to invest in promising ecommerce at potentially lower valuations.

Source: Pitchbook as of March 2024.

SaaS Industry Overview

Defining SaaS

Software as a Service (SaaS) is an application software that is hosted on the cloud and accessed via an internet connection, typically through a web browser or a mobile app. SaaS is on-demand – vendors host applications and data on their own servers, manage the platforms, and maintain the underlying infrastructure all so that clients can simply focus is on using the software. Typically, SaaS offerings are priced as a subscription or on a pay-as-you-go basis rather than requiring a one-time purchase. SaaS is crucial because it provides businesses with access to sophisticated software that would have been cost-prohibitive or resource-intensive to run on-premises.

The State of SaaS

SaaS and the overall market faced significant challenges in 2023 — rising interest rates, inflation, geopolitical conflicts, and bank failures shocked nearly every industry. However, incredible market resilience in 2023 Q4 generated great momentum going into 2024. With interest rates stabilized and Private Equity dry powder remaining near record levels, investors are looking for creative ways to deploy capital. The price of capital has made larger deals less reliable. Instead, PE firms are looking to smaller, middle-market dealmaking at a higher volume. The growing adoption and integration of AI tools drive excitement across industries. Strategic acquisitions take the stage as tech giants seek established, proprietary technologies to affirm market leads. Still, increasing regulations and antitrust scrutiny are taking shape across the globe. Navigating these shifts will require agility from new enterprises and investors alike.

SaaS is Projected to Double by 2030

Global SaaS Revenues

(In Billions of USD)

CAGR 19.3%

819

In recent years, SaaS companies accounted for a significant portion of the global software market. Projections show revenue will grow to over $339.1 billion in 2024 — and by 2029, this share is projected to increase dramatically with the market expected to reach $818.8 billion . That'sa compounded annual growth rate (CAGR) of 19.28% from 2024-2029 . The COVID-19 pandemic radically accelerated the adoption of digital services, and advancements in technologies like cloud computing. Now, AI is setting the stage for massive growth in the SaaS sector. Historically, spending on SaaS products grew more than tenfold between 2010 and 2020. This has not slowed down. However, the growth of SaaS hasn't been uniform across the globe. Different regions have experienced varying levels of maturity due to key factors such as funding availability, government regulations surrounding digital services, and the pace of technological adoption. North America currently dominates the SaaS market, representing 48% of the global market share in 2023. Meanwhile, the Asia Pacific region is expected to be the fastest-growing region, with a projected CAGR of 22%.

706

594

493

404

339

2024E 2025F 2026F 2027F 2028F 2029F

Source: Statista2024

SaaS Financing

Distribution of Financing Rounds by Volume

Enterprise SaaS M&A Deal Value by Backing

Enterprise SaaS M&A Deal Count by PE Backing

(In Billions of USD)

(No. of counts)

2018-2024

0 50 100 150 200 250 300 350 400

0 200 400 600 800 1,000 1,200 1,400 1,600

PE-Backed

Publicly Held

VC-Backed

Privately Held (No Backing) PE-Backed

Privately Held (Backing)

Publicly Held

Privately Held (No Backing) Privetly Heald (Backing)

VC Drives Volume, Public Market Leads Value • VC leads in deal volume with 1,342 transactions – totaling in 37.5% of the total market. These deals average at about $140.5 million per transaction. • PE-backed follows at 651 sales but averages greater values – about $553.3 million per transaction. • Publicly held companies take last in volume with 364 sales but have an impressive average of $980.3 million per transaction since 2018.

Source: Pitchbook as of March 2024

Largest SaaS Financing Deals in 2024

Deal Size ($M)

Company

Date

Funding Type

Company

Date

Funding Type

08-May-24

621

Later Stage VC

31-Jan-24

Later Stage VC

04-Apr-24

425

PE Growth/Expansion

16-Jan-24

Early Stage VC

19-Jan-24

260

Later Stage VC

02-Apr-24

Later Stage VC

23-Jan-24

221

Later Stage VC

26-Mar-24

Later Stage VC

18-Jan-24

175

Later Stage VC

28-Mar-24

Later Stage VC

12-Apr-24

152

PE Growth/Expansion

24-Apr-24

IPO

18-Jun-24

125

Later Stage VC

11-Mar-24

Later Stage VC

19-Mar-24

104

Later Stage VC

24-Jan-24

Later Stage VC

10-Apr-24

100

Later Stage VC

11-Mar-24

Later Stage VC

21-May-24

Later Stage VC

01-Jan-24

PE Growth/Expansion

28-Mar-24

IPO

17-Apr-24

PE Growth/Expansion

Source: Pitchbook as of June 2024.

SaaS M&A Activity

SaaS M&A Rebounding SaaS mergers and acquisitions (M&A) volume experienced a correction, post-pandemic. We've seen overall deal-volume stabilize to pre-pandemic levels with a steady increase in quarterly deal count. The cost of capital continues to have an impact on larger deals affecting the overall deal value in Q1 2024. However, deal-volume has reached a high- water mark outside pre-pandemic quarters – with Pitchbook estimating 154 deals competed. Deal-makers have gotten creative with their approach to transactions, looking to make more smaller deals. The middle-market and lower-middle- market is set to capitalize from this overall trend as PE firms look away from the typical megadeals.

Avg SaaS M&A Value by Industry (2018-2024) (In Billions of USD)

2018-2024

0 50 100 150 200 250 300 350 400 450

Enterprise Resource Planning

Customer Relationship Management Knowledge Management Systems

Analytic Platforms

Other Application Software

Supply Chain Management

SaaS M&A by Quarter (In Billions of USD)

120

300

Key trends:

200

• Increased Activity in AI and Enterprise Operations: Automation helps businesses keep up with changing customer demands. AI furthers progress as it allows both personalization through algorithmic searches, along with many other helpful tools, as well is the daily up-keep of order processing, inventory management, and financial reporting.

100

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1 2018 2019 2020 2021 2022 2023 2024 Deal Value Deal Count Estimated Deal Count

Source: Pitchbook as of March 2024.

Distribution of Global M&A Deals by Volume Enterprise SaaS subsegments reveal consistent strength

(In Billions of USD) Average Enterprise SaaS Deal Value and VolumebySubsegment (2018-2024)

250

700

656

600

200

500

438

Leading categories:

150

400

• Manufacturing & Operations lead in both volume and value ($210.1 billion).

311

300

236

100

231

• Financial Management Systems show more value ($117.6 billion) considering less overall volume. Indicates preferences for established industry leaders. • Analytics & Business Intelligence Platforms perform similarly, with even more emphasis in deal value ($105.4 billion). • Marketing shows high levels of activity. This indicates a consistent demand for new entries as well as experienced providers in the space due to a broad spectrum of enterprise demands and PE acquisitions strategies.

213

202

167

200

139

136

135

120

106

100

45 59 44

41 43

24 34 7

104

Source: Pitchbook as of March 2024.

Global SaaS Valuation By Sector

Global SaaS Valuations 2016-2024

25x

20x

SaaS valuations have stabilized following market anomalies caused by the COVID-19 pandemic. This stability shows positive outlooks for 2024 as, on average, as SaaS revenue multiples pick up from previous lows. The market could reflect even better returns with both lowered interest rates and a continued surge in AI investments — particularly in the lower and middle markets. Still, some fluctuations could come through the next year as data regulations expand and AI standards take shape. Plus, global election cycles present unknowns that could affect the market in later quarters. That said, investors are curious and looking for unique enterprises that are made to scale. AI and cybersecurity technologies will see continued investor interest across markets. Proprietary software and exclusive technologies still drive general investor interest, but valuations vary. Sellers will be expected to show strong company earnings across the board — like ARR, YoY growth, and gross margins that indicate the ability to sustainably scale operations — rather than just cash profit.

15x

10x

Human Resources and Workforce Management Collaboration and Productivity

Enterprise Resource Planning, Financial and Business Management Customer Relationship Management, Digital Commerce, and Sales

Source: Pitchbook as of June 2024. Data consists of transactions where deal value was disclosed. Note: Mean and Median is EV/NTM EBITDA

Select SaaS M&A Deals in 2024

Deal Size ($M)

EV/LTM Revenue

Deal Size ($M)

EV/LTM Revenue

Date

Target

Buyer

Target

Buyer

Date

26-Feb-24

1,860

18-Mar-24

28,000

6.64x

27-Feb-24

1,800

01-Feb-24

12,502

23-Jan-24

1,664

13-Mar-24

12,250

Tronic Ventures

10-Jan-24

1,591

29.19x

16-Jan-24

10,484

31-Jan-24

1,500

14-May-24

4,600

03-Jun-24

1,240

13.78x

01-Apr-24

4,003

24-Apr-24

1,200

01-Mar-24

4,000

2.67x

26-Jan-24

1,000

26-Jan-24

2,600

9.97x

01-Mar-24

1,000

02-May-24

2,500

04-Jun-24

1,000

01-May-24

2,275

11-Jun-24

930

01-Apr-24

2,000

Source: Pitchbook as of June 2024.

Lower Middle Market M&A Deals in 2024

Deal Size ($M)

EV/LTM Revenue

Deal Size ($M)

EV/LTM Revenue

Date

Target

Buyer

Target

Buyer

Date

09-Jul-24

100

29-Feb-24

18-Jun-24

100

27-May-24

7.0x

09-Jan-24

100

18-Apr-24

07-May-24

08-Jan-24

8.7x

08-May-24

01-Mar-24

20-Feb-24

29-Feb-24

15-Mar-24

07-Feb-24

09-Jul-24

23-Jan-24

4.9x

12-Jun-24

15-Apr-24

01-Feb-24

08-Jul-24

Source: Pitchbook as of July 2024.

Looking Ahead The post-pandemic environment has highlighted the importance of strong fundamentals for startups and sustainable, profitable growth for established companies in the SaaS sector. While investors are cautious, there is still significant interest in high-quality companies with robust growth metrics and clear cost structures. Key Takeaways: • Maturing sector: SaaS companies are moving past the rapid growth phase and are now focusing on sustainable and profitable expansion. This shift is crucial as the market matures and companies seek long-term stability and efficiency. • Investment to pick up : Overall investment is expected to remain modest in the short term, but it could rise as interest rates potentially fall in Q3/Q4 2024. This anticipated decline in interest rates could stimulate increased investment activity as capital becomes more accessible. • Embedded Finance, AI, and Cybersecurity in demand: Areas such as embedded finance (FinTech), artificial intelligence (AI), and cybersecurity (Cyber) are attracting significant investor interest. The focus on embedded finance highlights the integration of financial services into software platforms, while AI and cybersecurity continue to be pivotal due to the increasing demand for advanced technology and security solutions. In 2024, the SaaS sector is poised for strategic growth and investment, driven by a focus on sustainability, technological innovation, and adaptive market strategies. The cautious yet optimistic investment landscape underscores the sector's potential for continued evolution and success.

Case Studies

Sale of a Salesforce Payment Orchestration FE International represented Asperato, a Salesforce payment orchestration solution, which was sold to a Salesforce focused private equity firm

Asperato is an embedded Salesforce payment orchestration solution with a gross merchandise value (GMV) run rate of over $1.1 billion. The company helps businesses securely collect and process payments around the world with its fully tokenized PCI-DSS Level 1 compliant solutions, which have been audited and certified to meet the highest standards of security. By providing a variety of payment options and interfacing with 18 payment service providers, Asperato allows its customers to use their preferred method of payment on the Salesforce platform. Company Overview:

Sold to

Key Value Drivers:

• Opportunity presented to 500 buyers with the majority of outreach focused on strategic acquirers Buyer Interest:

Process Results:

Salesforce Payment Solution

• Revenue has grown 33% year over year between 2021-2022 • 87% gross margins

• Received three competitive offers for the business from private equity firms exceeded sellers’ expectations, achieving favorable deal terms • Offers received

• £1.6M ARR as of date went under offer • Net revenue retention of 111% (2022)

AI Writing Tool Receives 5 Offers After Selective Search FE professionals represented an Anonymous AI Writing Company in a competitive and successful sales process

This AI Writing Tool is a pioneering platform with innovative solutions for students, teachers, writers, and businesses across the globe. With over 10 million users and a presence in over 180 countries, the company integrates cutting-edge AI tools to enhance productivity and creativity in content creation. Key offerings include AI-driven writing, rewriting, homework assistance, grading, and plagiarism detection, all backed by robust research tools that ensure accurate and high-quality output. Company Overview:

Anonymous SaaS AI Writing Tool

Sold to

Private Buyer

Key Value Drivers:

• 86 Parties Contacted • 5 Offers Received Buyer Interest:

Process Results:

• As FE International knows the space very well, a focused, yet competitive process sale was achieved. • FE ran IOI and LOI stages and obtained five competitive offers for the business, meeting the owner’s expectations with a buyer able to execute seamlessly and at the right price

• Achieved $3M in annual recurring revenue by August 2023, indicating strong product-market fit and consistent revenue growth • Garnered 71 million website sessions in the last 12 months, demonstrating extensive user engagement and robust platform appeal • Realized compound monthly growth rates of 4% for ARPU and 3% for lifetime value • Impressive 4.6 out of 5.0 stars on Trustpilot

Behind this Report

Ismael Wrixen Executive Chairman

linkedin" Icon -

Rohit Kumbhar Senior Associate Rohit Kumbhar is a Senior Associate on the Investment Banking team at FE International. He has extensive experience in investment banking across multiple sectors. Previously, he worked as an Associate at Bank of America serving FTSE 100/250 clients for corporate broking advisory, investor engagement and M&A. linkedin" Icon -

Ismael Wrixen is Executive Chairman of FE International. Before FE, Wrixen was in large-cap M&A investment banking, where he executed several high-profile public deals, namely in the technology sector. He is a member of the Forbes Finance Council and a NACVA 2018 40 Under 40 Award winner.

Thomas Smale Chief Executive Officer

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Thomas Smale dedicates his career to helping founders get acquired on their terms. He built FE into the leading advisor for lower middle market technology businesses. Thomas offers invaluable technical, diligence, and negotiation advice to early-stage and seasoned business owners alike.

Randal Stephenson Head of Investment Banking

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Randal Stephenson has over 25 years of experience in both M&A advisory and debt and equity capital raising. Before FE, he held senior investment banking positions at Merrill Lynch, Jefferies, CIT Group, and Duff & Phelps. He has closed over 300 transactions valued at $44 billion across 22 countries.

About FE International Founded in 2010, FE International is an award-winning strategic advisor for technology businesses.

Sector Expertise

1,500 + Transactions completed on behalf of clients 1

Consumer Product Ecommerce Over 100 Successfully Closed Deals

Artificial Intelligence Over 15 Successfully Closed Deals

Agency & Marketing Solutions Over 50 Successfully Closed Deals

$48M Average Transaction Value

Percentage Completed Transactions 2 94.1% 70% +

Percentage of Sell-Side Transactions

Education Technology and Online Training Over 50 Successfully Closed Deals

Cybersecurity & FinTech Over 40 Successfully Closed Deals

Marketplace Apps Over 50 Successfully Closed Deals

Source: Company data. 1. Includes approximately 300 transactions completed by FE professionals while at other firms. 2. Sell-Side transactions, measured from the date of launch of buyer outreach and marketing.

London, UK

Warsaw, Poland

New York, USA

San Francisco, USA

Miami, USA

Mumbai, India

Awards:

Featured in:

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