Here are the selected insights from our survey done in collaboration with Endurance Search Partners.

Applied Equity is pleased to share the 2022 Search Software Survey which we conducted in partnership with Endurance Search Partners across our combined search software portfolio companies. Big thanks to the many search fund CEOs who participated! We hope the findings will be helpful to both current and prospective searchers looking at software related opportunities. Selected top-level insights are highlighted below, and more detailed findings are available. Good luck and good searching!

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Selected Insights from the 2022 Search Software Survey

1. Software is a growing area of focus for searchers with the proportion of deals increasing from very few just a few years ago to ~30% of searcher acquisitions in the past two years as more searchers and more investors gain confidence in this more complex space

2. Typical software companies that searchers are acquiring are smaller (avg $4M ARR) and younger relative to traditional search company acquisitions

3. Businesses are generally profitable at acquisition (80% gross margins; 30% EBITDA margins; $1.2M EBITDA) although profitability level is more variable than traditional companies, with some companies having very little EBITDA.

4. All have had strong recurring revenue profiles with consistently low single-digit churn

5. Valuation multiples have steadily risen over the past three years, from ~2x ARR on average historically to ~3-3.5x average ARR more recently, and some pushing well beyond that

6. 84% of all software deals involved no debt

7. All businesses owned for more than a year have grown ARR and improved recurring revenue profile. However, two-thirds of software companies held for over one year have seen decreased EBITDA margins

8. A majority of acquiring CEOs have no software backgrounds

9. Biggest pain points around recruiting and managing technical talent and keeping pace in highly competitive, dynamic markets

More detailed findings cover specific valuation multiples, vertical vs. horizontal software, growth rates, net retention trends, product competitiveness, and management challenges