Software & SaaS Company Valuations
Benchmarking Document for Software Publishers
Business Description
Software publishers are involved in the development, marketing, and distribution of software products. These products can range from operating systems and business applications to entertainment software and mobile applications. The industry includes firms that primarily design, develop, and publish prepackaged software, as well as those that may also provide related services such as support and customization.
Industry Classification
- NAICS Code: 5112 – Software Publishers
- SIC Code: 7372 – Prepackaged Software
Breakdown in the USA by Employee Count
Here’s a detailed table representing the distribution of firms in the Software Publishers industry by employee count, showcasing the estimated number of firms by size:
| Employee Count Range | Estimated Number of Firms |
|---|---|
| 1 - 4 employees | 4,000 |
| 5 - 9 employees | 3,200 |
| 10 - 19 employees | 2,400 |
| 20 - 99 employees | 4,800 |
| 100+ employees | 1,600 |
Industry Benchmarks
Gross Margin: Typically ranges between 70% to 90%. High gross margins are common due to the low cost of goods sold in software products.
Revenue per Employee: Generally ranges from $200,000 to $500,000, reflecting the high value of technical expertise and intellectual property in this sector.
SDE Margin (Seller’s Discretionary Earnings Margin): Commonly between 20% to 40%, depending on the company’s operational efficiencies and revenue model.
Valuation
Typical Valuation Multiples
- EBITDA Multiple: 6x to 10x
- Revenue Multiple: 2x to 5x
- EBITDA Multiple to SDE Multiple: Multiply the EBITDA multiple by a factor typically ranging from 0.7 to 0.8, depending on the proportion of the owner’s compensation and discretionary expenses relative to EBITDA.
Standard multiples serve as a general guide and should not be seen as a definitive calculation of a specific company’s value, as numerous factors can influence the final valuation.
Key Valuation Drivers:
- Recurring revenue streams, such as subscription models or long-term contracts.
- Proprietary technologies and intellectual property.
- Strong customer base with low churn rates.
- Scalability of the software product and potential for market expansion.
- Skilled workforce and effective management team.
Buyers of Software Publishers
Types of Buyers
- Strategic Buyers: Larger software companies or tech conglomerates looking to expand their product offerings or enter new markets.
- Financial Buyers: Private equity firms and venture capitalists interested in high-growth potential and profitable business models.
- Individual Entrepreneurs: Tech-savvy individuals or groups looking to acquire innovative products and capitalize on emerging market opportunities.
Target Company Sizes
Small to Medium: Typically, firms with $1 million to $20 million in annual revenue are targeted for their niche capabilities or innovative products.
Large Firms: Attracting buyers looking for substantial market presence and advanced technological solutions.
This document outlines the key characteristics of the Software Publishers industry, helping stakeholders understand the business landscape, performance metrics, and potential acquisition targets. This framework aids in evaluating the performance and strategic positioning of software publishing firms within the broader market.
