The Value of SaaS vs Maintenance Recurring Revenue
Posted by Bob Warfield on October 30, 2007
Oracle’s bid for BEA valued the company at 7.5x maintenance revenue. According to Credit Suisse, past Oracle acquisitions have all fallen into the 7x to 8x range. BEA asked for 9x.
This made me wonder about the value of SaaS recurring revenue. After all, if the Oracle’s of the world are primarily after nice, safe recurring revenue streams, maintenance is one thing, but it’s computed as a fraction of the license price, usually in the 15-20% range. Why not look at companies that get 100% recurring revenue for their software?
Here is a quick look at those figures for some publicly traded SaaS companies:
The average is 9, which is pretty close to the 7x-8x Oracle wants to pay for recurring maintenance revenues. A small premium for growth might make sense for these younger SaaS companies.
It’s always interesting when two relatively unrelated things, in this case a multiple on maintenance revenue and a multiple on SaaS revenue, match up so well. That’s usually telling us we’re on the right track.