Talking Exit Strategies With Montgomery & Co. | AMR Research

Talking Exit Strategies With Montgomery & Co. | AMR Research

Best valuations: must-have products and infrastructure vendors

We switched from exits to valuations. In our 2005 interview, Mr. Cooper said valuations had been holding at “1.5 to 3.0 times last-twelve-months (LTM) revenue.” This still holds true, though there are two exceptions. Some buyers will pay any price for a strategic acquisition. As proof, look at Citrix’s $500M offer for XenSource, a virtualization vendor said to have less than $5M in LTM sales. That’s a 12.5 multiple over the $40M the VCs put in, and more than a hundred times LTM revenue. The second exception is the desirable infrastructure that vendors are going for three to five times LTM revenue.

We closed the call with a discussion of the hot and cold M&A sectors. As for the hard to sell, security software tops the list of frigid. There was a sense that market had already consolidated.

Best bets: governance and compliance, SaaS, analytics, “platform extensions”

The hot list began with governance and compliance, albeit with a twist. This is a highly-converged offering that consists of content, business intelligence/performance management, and business process management. This was followed by SaaS, analytics, “platform extensions” (software adding to or building off of platforms by Google or salesforce.com), virtualization and data center optimization, and tight, vertical-specific offerings for financial services (such as credit card transaction processing) or healthcare IT.