Industry – Engineering & Environmental Services

The Austin Dale Group has over thirty years experience working in the software industry. We understand the business as industry executives, technologists, and deal makers. We understand what operating models deliver higher returns and what attracts higher valuations from buyers.

Industry Trends

  • Telecommuting and virtual offices – The coronavirus pandemic has accelerated adoption of telecommuting and virtual workplaces. Software is the key enabler of this new workplace trend.
  • The battle against ransomware and hackers – The arms race is continuing between IT administrators and bad actors who would disrupt operations. High profile ransomware attacks on companies and municipalities have made IT administrators desperate for added security.
  • Shift to Software as a Service (SaaS) and Recurring Revenue – Software producers are steadily moving away from the traditional perpetual licensing models and towards subscription models. Software subscription is often bundled with hosting services in cloud deployment models. Whether for on premise of cloud deployment, subscription revenue evens out revenue streams and cash flow for software companies.

Market and Valuation Trends

  • Recurring revenue is king – Multi-year recurring contracts with reliable corporate or institutional customers command the highest valuation multiples. Perpetual licensing models are seen as out-of-date and buyers reduce valuations to account for the cost and potential revenue drop out which will be seen during a transition to SaaS.
  • Software and SaaS continues as a hot market for M&A – The Coronavirus has caused a slowdown in M&A in some sectors, but there is still money available, so investors are looking for safer bets such as software.
  • Valuation trends – Strong valuations prior to pandemic, especially for companies that have reached scale (greater than $5M revenue, sometimes less for highly desirable markets, technology, etc.). We’re waiting to see what happens to valuations as the capital markets adjust to the new normal.

What Buyers Want

  • Recurring revenue – Cashflow provides a strong foundation for growth.
  • Scale – Bigger is better. Economies of scale and higher valuation multiples help larger players.
  • Reliable customers – Good customers who have a good payment history, while avoiding too much revenue concentration with a small group of customers.
  • GAAP Financials – Recurring revenue needs to be accrued appropriately. Cash-basis accounting can lead to big problems, particularly when lump payments are received for longer subscription periods.