M&A: Recurring Revenue Multiple Valuation Method

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In industries where revenues are recurring in nature, expenses are on occasion ignored, and the businesses trade at a multiple of revenues.  For instance, alarm companies trade at about 30-40 times monthly recurring revenue. Software as a Service (“SaaS”) companies are often valued at a multiple of annual recurring revenue, adjusted for growth and revenue retention, with the higher valuations, obviously, going to companies with strong growth and retention.

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David Traversi, Partner, Newport (