Enterprise SaaS buyouts are on the rebound from a lull in 2023 as increased digitalization contributes to more deals, and as investors take comfort in an improving exit environment.
A PitchBook analyst note exploring sector deal trends estimates 59 buyouts of SaaS companies in Q1 2024, compared to an estimated 42 deals completed in Q4 2023.
While the total value of Q1 deals is in line with pre-pandemic levels, the number of buyouts may have reached a five-year high, with the quarterly estimate exceeding, by three, the 56 buyouts recorded in Q4 2020, when corporations were actively pursuing digital transformations to adapt to a newly remote workforce due to the COVID-19 pandemic.
“PE managers make up about a third of all M&A transactions; although, their share is growing as they seem to be getting more aggressive on deals,” said Derek Hernandez, a PitchBook senior emerging technology analyst. “Managers are acquiring these SaaS companies in anticipation that there may be higher valuations and a healthier IPO market in the future.”
In March, General Atlantic entered into a $1 billion buyout of Plusgrade, a company that assists airlines and other travel companies in optimizing revenue by selling upgrades to customers. The transaction valued the company at $2 billion and was financed with a $500 million debt package.
Hernandez explains that a majority of deal activity within enterprise SaaS in recent years developed from businesses wanting to efficiently integrate services that overlap with AI solutions, such as enterprise resource planning and customer relationship management.
“Enterprises post-pandemic have continued to focus on profitability and have sought out generative AI solutions to create a competitive advantage,” he said. “PE managers have focused on these services, which are providing greater opportunities for enterprises to work more efficiently, thus providing greater cash flow and margin expansion for companies as they seek to do more with less.”
Enterprise resource planning and customer relationship management are two out of the six segments within PitchBook’s enterprise SaaS taxonomy, which was created after evaluating more than 12,000 SaaS companies. Other segments include analytic platforms, supply chain management, knowledge management systems and other application software.
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