Upland Software is a publicly-traded SaaS company based in Austin, TX that specializes in acquiring sub-scale SaaS companies and rolling them into the portfolio. To date, they’ve acquired 14 companies and are actively looking to buy more. With a market cap of $480 million and an annualized run-rate of $80 million (source UPLD), they’ve executed this strategy for 7+ years.
Here are the four criteria for Upland Software acquisitions:
- Financial Profile – Revenues in the $5-$25 million range
- Recurring Revenue Base – Renewal Rates > 90%
- Enterprise Applications – Built-for-purpose Enterprise Work Management
- Geography – U.S., Canada and E.U.
According to their press release from a few months ago they pay 5-8x pro forma Adjusted EBITDA:
The acquisition is within Upland’s target range of 5-8x pro forma Adjusted EBITDA and will be immediately accretive to Upland’s Adjusted EBITDA per share.
Long term, their target is an Adjusted EBITDA margin of 40%.
Here’s how an acquisition might work:
- $10 million/year SaaS business makes $3 million/year Adjusted EBITDA
- Upland acquires the SaaS company for $21 million (e.g. 7x Adjusted EBITDA)
- Upland cuts expenses and raises the Adjusted EBITDA from $3 million to $4 million (e.g. 40% target)
- Upland’s stock trades at ~18x Adjusted EBITDA (e.g. $26 million Adjusted EBITDA expectation for 2017 with a valuation of $480 million ignoring current assets and debt – source)
- $4 million of new Adjusted EBITDA increases the value of the business by $72 million, making the $21 million acquisition very profitable
Entrepreneurs thinking through potential exit value for their startup should understand these values and how a financial buyer might value the business.
What else? What are some more thoughts on this example with four criteria for a 5-8x Adjusted EBITDA software exit?