Key Metrics and Key Drivers in the Valuation of Public Enterprise Resource Planning Companies

摘要

As an industry matures, company valuations shift from a revenue driven valuation to a profitability driven valuation. Despite operating in a relatively mature industry, companies in the enterprise resource planning (ERP) software segment are still influenced by revenue driven valuations. The nature of the industry, with low delivery costs and high personnel costs, and the on-going switch from packaged software revenues towards “as a service” revenues protect the importance of revenues in this segment. With the development of the sector, the valuation drivers (key operating performance indicators) shift from revenue growth to profitability. In the ERP software segment top line growth remains the key driver especially with emergence of the Internet of Things and the concept of “Industry 4.0”, where an increasing number of devices are interconnected and can communicate with each other. The article analyses through regression analysis the current revenue and operating profitability based valuation levels of thirteen publicly listed in the ERM software segments against several key operating performance indicators. The results of our research show that future expected revenue growth remains the most important key operating performance indicator and both revenue and profitability driven valuations remain relevant. These findings are especially important for investors in the ERM software segment which are looking to sell their companies or to raise additional capital.