How come only ~1.3x annualized revenue (the press release said: Year to 30 June 2012, Matasano revenue was $5.0m)? That seems like a very low multiplier -- are consulting companies treated differently from product companies in this regard?
Services companies, of which consulting companies are a subset, typically receive 1.5x to 2x multiples. [n.b. Your math does not match my math.] Why is this less than product companies get? That's less because consulting companies are a bad place to be and more because successful products are an awesome place to be.
It is totally reasonable to have a product company do $7 million of revenue on, say, $2 million of costs. (Let's see: four devs, two sales guys, one marketing, two founders... throw in overhead and we're there.) An acquiring company might have an easy, obvious path to turning that into $70 million of revenue on $5 million of costs. (For example: "We change essentially nothing about your company. We hawk your product to our customer base, using our sales guys, who 6 weeks ago only uttered your name if a customer brought it up, to disparage you. This makes us a mountain of money.")
A services company, on the other hand, might have $7 million revenue on $4 million in costs (16 consultants, 1 business manager, 2 founders). The most straightforward pathway to take this business from $7 million to $70 million is to add 144 consultants. They cost ~$40 million a year. This would be a radically less attractive proposition if it were even possible, but if hiring 144 consultants was easy, you wouldn't have to buy a company to find only 16 of them.
Also, with a dev company you're buying some capital (software) plus renting access to brains. With a consulting company, you're renting access to brains. In all circumstances, brains can move. Software rarely decides to do that spontaneously.
Edit to elaborate: The above is not a strike against doing consulting, by the way. Thomas, for example, has frequently mentioned on HN two true, salient facts: a) almost all products fail miserably and b) the principals at a consulting company beat BigCo salaries approximately the second they call themselves "principals at a consulting company", which is very much not the case at most product companies.
What keeps me building product each day after billing 8 hours of consulting time is that consulting profit is a linear function of time * employees but I can't make more time and I don't want to manage a bunch of consultants.
