PE firm Thoma Bravo is set to acquire Anaplan (tkr: PLAN) for $10.7 billion. That valuation implies an 18x Enterprise Value to Revenue (EV/Revenue) multiple on trailing revenue of $592 million. To us 18x revenue is a rich valuation in this environment where interest rates are climbing and recession is around the corner.
Even if Thoma Bravo is successful in driving Anaplan to cash flow profitability (PLAN burned $15 million in Cash from Operations during fiscal year ended January 31, 2022), it would seem to us that Software valuation multiples are likely to contract over the next several years as fixed income yields migrate higher and as risk assets reprice lower. Thus, it will become increasingly difficult for PE firms to generate fat IRRs on deals where the purchase price is rich and the cost of debt is increasing and likely to continue to increase over the next several years.