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2 minute read / Jul 31, 2023 /

What the New Relic Sale Means for SaaS

Earlier today, New Relic announced its sale to Francisco Partners & TPG for $6.5b.

The acquisition is notable for two reasons.

First, it accelerates the momentum within the technology buyout space.

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At its current pace, technology buyout volumes of venture-backed technology companies will tie or exceed the ten year high, charted in 2022 of about $20b.

PE buyouts provide 2023’s slower M&A market liquidity & activity, perhaps will begin to spur strategic/corporate acquirers into action.

Second, New Relic’s sale price is close to the recent highs measured on January 1st of each year

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New Relic benefitted from multiple expansion that pushed its valuation higher - admittedly less than the top quartile. Within 18 months, the company attained a sale price within 5% of the high.

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New Relic’s financials relative to its peers are important to bear in mind. The company generated similar free-cash flow yield (free cash flow / price per share). This cash pays the interest costs of the transaction debt. In buyouts, the acquirers invest some cash, but borrow 50-75% of the transaction value. The company’s excess cash flows pay those interest payments.

In addition, the company operates with lower profitability & worse sales efficiency than its peers.

This acquisition is a bet that the company can be run more efficiently. If we are in the nadir of multiple expansion & acquirors expect improved future results, the M&A market should re-invigorate.


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