Software Valuations in 2010

Richard Davis at Needham is a favorite stock analyst. He talks to hundreds of high tech companies every year and thus stays close to what’s really going on in the market. In his most recent “Musings” in mid-December, he shared his thoughts on how software companies did in 2009 and what the outlook for valuations is for 2010.

In 2009 software stocks outperformed the S&P 500 by gaining 50% versus an average 23%.

2009 Software stock performance

Interestingly, while software M&A didn’t pick up as much as he expected, the average takeover premium jumped to 50%.

Software Stock Premiums 2009

This isn’t counterintuitive in a bad economy when stock prices are tanking, but “this one year trend has convinced CEO’s and Boards that it is an insult unless they get a premium of 50%.  This is delusionary and I believe premiums will return to a normal 30% next year.”

2010 looks to be a rebound year overall. I’m looking forward to seeing the level of M&A activity and whether premiums settle back to normal levels.

The data source for post is the December 14 edition of Needham analyst Richard Davis’s Musings. Needham & Company, LLC is a nationally recognized investment banking and asset management firm focused solely on growth companies and their investors. Founded in 1985 by George Needham, Raymond Godfrey, Jr. and David Townes, the firm is headquartered in New York City with offices in Boston, San Francisco, and Menlo Park, CA.

About Bob Barker
Bob Barker is a trusted advisor to CEOs, helping them identify, define, and execute new growth-accelerating opportunities. He also shares ideas on LinkedIn (robertgbarker), in guest posts on related blogs, and in industry publications. Contact him via email at bob@2020outlook.com.

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