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Summary

  • Average acquisition premium to undisturbed share price is 53.8%.
  • Three findings may help you predict stock direction of the acquirer over time.
  • The average EV/Revenue multiple for: (i) public targets is 8.0x, (ii) private targets is 5.2x and (iii) sub- $25 million revenue targets is 4.8x.
  • Public acquirers may have an opportunity to 'Print money' if they can buy a private at 5.2x and continue to trade at 8.0x.

If you are a retail or institutional investor in the SaaS (Software-as-a-Service) sector, a Strategic buyout offer can be lucrative. Based on our analysis, the median acquisition premium to undisturbed share price is 48.3%.

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But, what if you owns shares in the acquirer?

To answer the question we analyzed the 43 SaaS M&A transactions reported by Software Equity Group (SEG) in its 2014 Software Industry Financial Report, as well as its 1Q and 2Q 2014 quarterly report.

Three findings may help you predict stock direction of the acquirer over time.

If the target is public a valuation in excess of 8.0x (average EV/Revenue) may be indicative of an 'Overpayment' and associated decline in share price (all things being equal).

If the target is private with at least $20 million of revenue, a valuation in excess of 5.2x (average EV/Revenue) may be indicative of an Overpayment and associated decline in share price (all things being equal).

If the target is private with less than $25 million of revenue, a valuation in excess of 4.8x (average EV/Revenue) may be indicative of an Overpayment and associated decline in share price (all things being equal).

Who appears to be vulnerable to having Overpaid recently? One example that jumps out is Priceline's (NASDAQ:PCLN) acquisition of OpenTable (NASDAQ:OPEN). It's (Priceline's) stock trades for 8.0x revenue, and OpenTable was purchased for 12.6x.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.