A Guide to Selling Your SaaS Company to Private Equity

Private equity firms historically avoided software acquisitions or only pursued massive deals, but that’s changed in recent years. When we spoke with Aaron Solganick, an M&A advisor specializing in SaaS, he shared that PE firms now represent at least 30% of the buyer market for software companies. These PE firms are also acquiring smaller businesses, sometimes targeting companies with as little as $3 million in Annual Recurring Revenue (ARR).

But selling to a PE firm involves unique considerations. These deals typically include complex structures with earnouts, equity rollovers, and expectations that you’ll stay involved to help grow the business. And depending on your company size, business model, and exit goals, a PE firm may not be your best option.

To help you better understand private equity’s role in the SaaS industry and how you can get the best exit for your business, this post covers:

• Why private equity firms are buying SaaS companies
• Pros and cons of selling to private equity firms
• Key metrics that PE firms evaluate when acquiring a company
• How to achieve your ideal exit with the right M&A Advisor

Why Private Equity Firms Are Buying SaaS Companies

The SaaS industry is fragmented, with thousands of small- to medium-sized companies that could benefit from professional management, additional capital, and operational improvements. PE firms see an opportunity to buy these companies, improve them, and sell them for a return.

As Solganick explained, a key motivation for PE firms is “arbitraging multiples.” They aim to buy companies at lower multiples (e.g., 4 to 6 times revenue), grow them significantly, and sell them later at double-digit multiples (e.g., 12 times revenue)

With that overarching goal in mind, you can see why PE firms value:

• Recurring revenue that brings in predictable cash flow. Subscription models with low customer concentration and low churn rates demonstrate the kind of predictability PE firms need to finance acquisitions with debt. Unlike businesses with non-recurring revenue, SaaS companies show reliable month-over-month revenue that buyers can count on.

• High profit margins that give room for growth. As Solganick noted in our interview, “Most SaaS businesses maintain gross margins above 75%, with the best companies exceeding 85%.” These margins are significantly higher than non-software companies, generating stronger cash flow. This gives PE firms resources to invest in scaling without sacrificing profitability.

• Scalability that makes it possible to achieve high returns. Once you build software, you can sell it to more customers without proportionally increasing costs. This scalability potential excites PE firms because they can invest in growth initiatives, sales teams, marketing, and product development, then see returns that far exceed the investment.

Further, as Solganick put it, “Software is kind of the next frontier of where everything is going. No matter what kind of business you’re in, software is involved in some way. If you’re a manufacturing company, you’re using software to do a lot of your stuff.”

PE firms see the growth potential and, as a result, are acquiring more and more SaaS companies.

The Size of Deals PE Firms Pursue

According to Solganick, most PE firms targeting SaaS companies focus on businesses doing “$10 million of ARR to roughly $50 million.” Some firms pursue larger deals — Solganick’s firm works with companies up to $250 million in ARR — while others go smaller, down to $3–5 million ARR, though these deals are less common.

Platform Investments vs. Add-On Acquisitions

PE firms typically invest in SaaS companies in two ways: as platform companies or as add-on acquisitions.

• Platform companies are the first major investment a PE firm makes in a particular space, used as a foundation for additional acquisitions. As the platform, you’ll likely see more equity rollover opportunities and more involvement in the growth strategy. Typically, a SaaS company needs to have an ARR of +$10M to be considered a platform company.

• Add-on acquisitions are smaller companies that get merged into an existing platform company. These deals typically involve smaller check sizes, according to Solganick, and you’ll roll into the combined company alongside other owners who sold their businesses to the same PE firm.

This distinction directly affects your equity position. As Solganick noted, “If you’re the first company that they’re acquiring,” PE firms will be “more open to giving you more equity.” But “if you’re the 20th company that they’ve acquired, there’s likely going to be less equity to roll over” because they’ve already given away equity to other sellers.

Private Equity Buyers vs. Other Buyer Types

PE firms aren’t your only option when selling your SaaS business. Strategic buyers — larger software companies or tech firms looking to expand their product offerings — represent the other major buyer type. Understanding how these buyers differ helps you evaluate what matters most for your exit.

The trade-off is typically between price and stewardship. Strategic buyers often pay premium multiples because they can immediately integrate your product into their existing business and realize synergies. They have the resources and market position to extract maximum value from your technology. The trade-off is that they typically absorb your company completely. Your brand disappears into their portfolio, your team gets restructured to fit their organization, and you have limited say in how the business evolves post-acquisition.

Whereas PE firms approach acquisitions as growth investments. They focus on cash flow predictability and operational efficiency, keeping your business running independently while providing resources to scale. You’ll receive less cash upfront — typically replaced by rollover equity that gives you a stake in the company’s future growth. When the PE firm sells the company 3–5 years later, this “second bite” can equal or exceed your initial payout. You’ll also maintain more involvement in strategic decisions during the hold period.

But these are generalizations. Some strategic buyers preserve your brand and culture. Some PE firms are hands-off. Deal structures vary widely based on your company’s size, growth trajectory, and the buyer’s specific strategy.

That’s why experienced advisors like Aaron Solganick don’t recommend focusing on only one buyer type before going to market. Instead, they create competitive bidding processes that bring multiple qualified buyers — both strategic and PE firms — to the table. This lets you evaluate actual offers with specific terms on cash at close, rollover equity, earnouts, exit timeline, and stewardship rather than making decisions based on buyer-type assumptions.

For more information on buyer types, read our posts on:

• Strategic vs Financial Buyers
• How to Find a Buyer for Your Business

Pros and Cons of Selling to Private Equity

Below, we look at the potential pros and cons of selling your SaaS company to a private equity firm. We say “potential” because these are not just black-and-white pros and cons. Rather, they’re attributes of selling to a PE firm based on what PE firms are looking for.

Depending on your specific exit goals — which you’ve thought of during your business transition planning stage — a pro or con we list below may not be applicable to your situation.

The Potential Pros

Speed and Certainty

PE firms have committed capital ready to deploy, and they’ve done dozens or hundreds of deals before.

As Solganick put it, “Private equity deals tend to move pretty quickly because they have or can quickly get the resources to acquire your business. They’re also M&A professionals, so they have a team ready and know what to do to move the deal along.”

Benefit from the Second Bite of the Apple

When you sell to a PE firm, you typically don’t cash out completely. Instead, you roll over 20–30% of your equity into the new combined company.

Remember, the PE firm that acquires your company is going to sell it again, generally sometime within the next 3–5 years. During that time, they’ll help grow your business significantly. So, when they sell it a second time, your rolled-over equity can be worth as much as, or even more than, your initial payout.

Solganick broke down the math: “I’ve seen owner-shareholders get at or more than what they first sold their company for on the second bite because the equity has gone up so much over five years. Then all of a sudden they got another $20 million out of the deal. It’s not always that significant, but it can be very lucrative.”

This happens because PE firms perform multiple arbitrage — buying at lower valuations and selling at higher ones. As Solganick explained, “They want to get the company from $10 million to $20 million to $50 million to $100 million of ARR. So when they sell it at $100 million five years from now, that multiple is going to be 12x its ARR vs. the 3-6x it was when you initially sold it.”

PE Firms are Professional Growth Partners

PE firms bring dedicated resources to scale your business. They have operating partners who specialize in sales and marketing, experts who can implement better systems, and portfolio networks that create cross-selling opportunities.

The Potential Cons

Complex Deal Structures

PE deals rarely involve simple cash-at-close transactions. When evaluating deals, you’ll see earnouts, rollover equity, and seller financing that can make the deal hard to evaluate.

These complexities aren’t negatives in themselves, but they require an experienced M&A advisor who knows how to navigate these structures. A seemingly generous offer may have unfavorable earnout terms, while a low-cash-at-close offer could actually be premium once you factor in rollover equity and the second bite opportunity.

The most common source of this complexity is earnouts. An earnout means you get paid additional payments over 1–3 years if you hit certain performance targets. They bridge valuation gaps and allow the buyer to acquire your company while taking on less debt.

According to Solganick, earnouts typically represent “20 to 30% of the deal” for companies in the $5-30 million ARR range.

So you can’t necessarily avoid them, but you can make sure the earnout structure and agreement are fair and competitive.

Let’s say your earnout is $2 million tied to hitting $15 million ARR by year two. A poorly structured earnout is all-or-nothing: you hit $15 million and get the full $2 million, or you hit $14 million and get nothing. A well-structured earnout pays you proportionally. If you hit 90% of the target ($13.5 million ARR), you get 90% of the earnout ($1.8 million). An experienced M&A advisor ensures you’re not penalized for missing targets by small margins.

Potentially Lower Upfront Cash

Because PE deals involve earnouts and equity rollovers, you’ll typically get less cash at closing compared to what a strategic buyer might offer.

Whether this trade-off makes sense depends on your confidence in the business’s future growth and the PE firm’s ability to execute.

Cultural Changes

PE firms focus intensely on metrics, EBITDA growth, and margin expansion. This creates a more performance-driven environment than many founder-led companies are used to. You’ll have regular reporting requirements, quarterly business reviews with the PE firm’s operating partners, and pressure to hit growth targets.

For founders who have run their companies with more flexibility, this shift can feel constraining. Decisions that you once made autonomously may now require board approval. Expenses that seemed reasonable in a founder-led environment might get scrutinized as unnecessary overhead.

However, the cultural fit varies significantly by PE firm. Some firms are hands-on with strong opinions about operations, while others are hands-off and trust management teams. If maintaining certain aspects of your company culture is important, discuss this with your M&A advisor. They can help identify PE firms whose approach aligns with your values and vet potential buyers based on cultural fit.

Short-Term Ownership

PE firms typically hold software companies for 3–5 years before selling again. If you wanted to find a long-term owner who would steward your business for decades, a PE firm isn’t that buyer. They have a defined timeline for creating value and exiting.

Key SaaS Metrics That PE Firms Evaluate When Acquiring Businesses

PE firms evaluate SaaS companies differently from non-software businesses. They focus heavily on recurring revenue metrics and growth efficiency.

When it comes to understanding what your company will likely be valued at, it’s good to look at the specific SaaS metrics that buyers value.

Solganick explained it this way, “If a company gives me their ARR, gross margin, and EBITDA, I can give them a rough estimate of their value. But you want a specific and accurate multiple. The more KPIs and the more financial data I have to work with, the more accurate your valuation will be.”

Here are the metrics that matter most:

• Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR): PE firms value SaaS companies using multiples of ARR. In 2025, Solganick has been seeing multiples ranging from 3x-5x ARR for smaller SaaS companies to 7x-12x for mid to large companies, showing consistent growth.

• Customer churn rate: PE firms scrutinize churn to assess revenue predictability. Monthly churn rates below 2% for B2B SaaS (or annual churn below 10%) demonstrate strong customer satisfaction. High churn scares off buyers or lowers your valuation.

• LTV:CAC ratio: Your customer lifetime value divided by customer acquisition cost should be at least 3:1. This shows that you’re acquiring customers efficiently and that they generate enough profit to justify the acquisition cost.

• Gross margins: SaaS businesses should maintain gross margins above 75%, with best-in-class companies exceeding 85%. Strong gross margins indicate efficient operations and scalability.

• EBITDA and profitability: While many high-growth SaaS companies reinvest heavily rather than showing profit, PE firms still care about EBITDA. As Solganick noted, “If you’re doing $10 million ARR and you’re breaking even, your ARR multiple may be 3x-4x. But if you’re doing $10 million ARR with $3 million of EBITDA, they may give you another point or two.”

• Customer concentration: If one customer represents 30–40% of your revenue, that’s a major red flag. As Solganick noted, “You don’t want one customer taking up 30, 40, 50% of your business. Try to get it to 20% or under.”

Learn more about key SaaS metrics here.

How Axial Helps SaaS Owners Get the Best Exit

Above, we looked at what motivates PE firms to buy SaaS businesses, the pros and cons of selling to PE firms, and which metrics they use to value your company.

When you’re ready to sell your business, the next step is to find a SaaS M&A advisor who is a good fit for your company.

The right advisor helps increase the chances of you getting your ideal exit in several ways:

• They value your company accurately using real transaction data. You might know your ARR and EBITDA, but translating that into what buyers will actually pay requires data from comparable SaaS transactions. For example, an M&A advisor like Solganick can take your ARR, gross margin, and EBITDA, and give you a rough estimate. But you want a specific and accurate multiple. SaaS M&A advisors can leverage real transaction data, along with their industry experience, to value your business accurately.

• They create competitive bidding environments. Instead of negotiating with one unsolicited PE offer, experienced advisors market your business to both financial and strategic buyers — creating competition that drives better terms. More buyers at the table means more leverage in negotiations.

• They position your metrics for maximum impact. Buyers and owners value different things. An advisor knows how to frame your business — whether emphasizing recurring revenue predictability for PE firms or integration potential for strategic buyers — to maximize perceived value.

• They save you 20–30 hours per week. Based on conversations we have with M&A advisors in our network, they can save you up to 30+ hrs a week. This is because M&A advisors handle buyer vetting, document requests, and meeting coordination — letting you focus on maintaining business performance during the sale process.

• They negotiate objectively with industry expertise. Because they know what companies like yours sell for, they can push back on unfavorable earnout terms, negotiate better rollover equity percentages, and spot red flags in deal structures that you might miss.

But finding the right M&A advisors requires in-depth knowledge of the M&A space and SaaS M&A advisors, including an eye on their past deals.

At Axial, we’ve built a network of over 3,000 M&A advisors and investment banks. We analyze each advisor’s transaction history to understand their specific expertise.

We start by pairing you with an Exit Consultant who learns about your business and exit goals. Your consultant then reviews our network to identify advisors who have:

• Recent, relevant deal experience in SaaS. We prioritize advisors who have successfully sold software businesses similar to yours in size, business model, and market.
• Strong down-funnel success. We track each advisor’s ability to convert buyer interest into actual offers. This includes metrics like the number of qualified bids generated per transaction and their success rate in closing deals.
• Professional reputation. Our relationship management team works one-on-one with the M&A advisors in our network. They have a clear view into an M&A advisor’s professionalism and responsiveness.

We create a curated shortlist of 3–5 advisors specifically qualified for your situation. Each advisor on your list has demonstrated expertise in SaaS transactions and maintains relationships with PE firms and other buyers who actively acquire software companies.

If you’re ready to explore selling your SaaS business to a PE firm, schedule a free exit consultation with Axial.