Software companies: Managing through market disruption and beyond

Taking action to protect revenue and focus on innovation in a time of COVID-19.

Per Edin

Per Edin

Principal, TMT Strategy, KPMG US

+1 408-367-6080

Tim Zanni

Tim Zanni

Global and U.S. Technology Sector Leader, KPMG US

+1 408-367-4100

COVID-19 has caused a rapid, unprecedented impact to the software industry driven by a dramatic shift in consumption. This has created business continuity uncertainty. As software companies look to stabilize and re-emerge, they should use a three-phased approach focused on: Resilience, Recovery and the New Reality.

  1. Software and SaaS subsectors are among the better stock performers in the early disruption, having lost only ~6% on average from February to mid-May, but performance varies significantly across subsectors – from +22% gain to -25% loss
  2. Software and SaaS company liquidity is relatively strong compared to the S&P 500 median, but many remain sensitive to rapid revenue disruption and have to react quickly to any significant drops in revenue or cash collection performance
  3. Software market is expected to continue to grow, but more slowly, as in the three prior down-turns. SaaS has grown faster than other software, but SaaS companies saw growth rates drop by ~half for 2 years during the 2008 downturn
  4. To compensate, SaaS companies may need to manage costs to maintain efficiency. From 2007-2010, SaaS companies reduced OpEx share of revenue by 5-6 percentage points – though absolute spend increased
  5. Companies should maintain focus on M&A and innovation. From 2007-2009, M&A deal volumes were halved, but IRRs for software and services deals more than doubled and innovative companies continued to emerge
  6. Leaders plan in parallel for both recovery and a new reality. History suggests that companies executing a balanced response, focusing both on cost and revenue, outperform competitors post-recession on sales and EBITDA growth


What are the core stages and activities of response planning?

Response planning such as profitable focus, commercial flexibility, digital acceleration, market consolidation, and altered risk conditions should address 3 distinct stages, that may overlap.



Resilience: Rapid mobilization and stress testing

  • Safeguard employees/assets
  • Assess impact to revenue/payments
  • Protect customers and manage churn
  • Control use of cash
  • Stress test the business


Recovery: Improve performance under new conditions

  • Adapt go-to-market to customer/partner needs & conditions
  • Take steps to reduce cost as appropriate
  • Manage working capital and debt
  • Re-prioritize capital investments
  • Evolve risk and compliance controls

New reality

New reality: Capture value from pervasive changes

  • Shift talent/capital towards growth
  • Adapt offers to new sources of demand
  • Innovate new capabilities and solutions
  • Enter adjacent markets to capture additional value
  • Take advantage of M&A opportunities

Our firm brings leading capabilities to assist you in your response and recovery. Download the overview to learn more.