Getting Acquired: A Business Owner’s Guide to Navigating SaaS Acquisition

Getting acquired is one of the most consequential decisions you’ll make as a SaaS owner — and one of the hardest to navigate well.

Most owners don’t know what their company is actually worth. The difference between a 3x and 5x multiple on a $10M ARR company is $20M, but without an accurate valuation, you can’t tell whether an offer on the table is fair or whether waiting a year to improve key metrics would substantially change your outcome.

Even when you do get an offer, evaluating it is harder than it looks. SaaS deals are a mix of cash at close, earnouts tied to performance targets, rollover equity, and sometimes seller financing. A $30M offer with 30% in earnouts tied to aggressive ARR targets is a very different deal than a $25M offer that’s mostly cash — and comparing them requires expertise most owners don’t have.

Then there’s the question of who’s buying. Strategic buyers care about customer overlap and synergies. PE firms evaluate standalone cash flow and growth efficiency. How you position your business changes depending on the buyer, and getting it wrong means leaving value on the table.

On top of all that, you’re trying to run this process while running your company — and you’re doing it with a business you built, which makes it hard to negotiate objectively or walk away from a bad deal.

To help, this article covers the essential aspects of SaaS M&A, including:

• How SaaS companies are valued using ARR multiples and key performance metrics
• Different buyer types and what each looks for in acquisition targets
• Deal structures including cash, earnouts, and equity rollovers
• How to achieve your ideal exit with the right M&A advisor

But first, let’s look at recent examples of SaaS and tech-enabled acquisitions within the Axial network.

Examples of Recent SaaS and Tech-Enabled Acquisitions

Axial has facilitated over 15 years of M&A transactions, building the largest network of pre-vetted M&A advisors, investment banks, and business brokers in the lower middle market — over 3,000 firms that specialize in helping small to midsize businesses achieve successful exits. Our work helping that network identify and transact with the right investors has generated data on hundreds of thousands of transactions, which we use both to match business owners with the right advisors and to track which advisors are consistently getting deals done.

Below are examples of acquisitions that have occurred within the Axial network, demonstrating the types of deals our M&A advisory members facilitate:

• Alden Advisors advises Cadient in acquisition by Basis Vectors. Cadient provided workforce management solutions for companies with distributed hourly workforces, supporting large companies for over 15 years. The company focused on simplifying hourly hiring processes and bringing confidence to hiring managers’ decisions through real-time consultation, recruitment innovations, and delivering higher-quality candidates quickly.

• Lawrence, Evans & Co., LLC advises Core Billing Solutions in acquisition by Adarna Health Group. Core Billing Solutions was an experienced provider of revenue cycle management services for behavioral health organizations. The acquisition enhanced Adarna’s mission to build a robust platform of tech-enabled RCM services tailored to the behavioral healthcare industry.

• Britehorn Partners Advised Requordit in Sale to Willcrest Partners. Founded in 1997 and headquartered in Chicago, Requordit was a leading provider of enterprise content management and workflow automation solutions for mid-market and Fortune-level organizations. The company specialized in helping clients digitize and automate document-intensive processes, particularly in accounts payable and accounts receivable across construction, manufacturing, financial services, and public-sector clients. As a top Hyland OnBase solutions partner, Requordit delivered proprietary CloudOCR and CloudPAYit software solutions.

• CEO Ally Advises Knack Global on its Investment from Weave Growth Partners. Knack Global was a leading provider of Revenue Cycle Management solutions. The recapitalization was led by LKCM Headwater Investments and further supported by Weave Growth Partners, with the partnership seeking to accelerate the company’s growth by bolstering direct sales capability, augmenting the service model with tech enablement, and expanding within current and new verticals through opportunistic acquisitions in the rapidly growing $110 billion domestic RCM market.

Finding the right advisor matters because every SaaS company has specific positioning challenges that affect how buyers perceive value. For example, if your product has been embedded in clients’ workflows for over a decade, the right advisor knows how to frame those long-term customer relationships and recurring usage patterns as valuation drivers. Or if you’re not looking for a full exit but rather a recapitalization to fund growth, you need an advisor who can identify PE partners whose investment thesis aligns with your expansion plans, whether that’s scaling direct sales, adding tech capabilities, or pursuing add-on acquisitions.

To find the right M&A advisor for your exit, schedule your free exit consultation. Axial’s Exit Consultants match you with the most relevant M&A advisor for your objectives, size, and industry, drawing from a network of 2,000+ proven experts. We help you secure maximum value, protect confidentiality, and find the right steward for your legacy.

How SaaS Companies Are Valued: Understanding ARR Multiples and Key Metrics

When you want to get acquired, the first question you need answered is: what’s my business worth? An accurate valuation helps you understand what getting acquired can look like for your business, including:

• Which buyers will be interested
• What deal structures to expect (such as the mix of cash, earnouts, and rollover equity)
• Whether any offers you’ve received are fair or leave significant value on the table

Getting your business valued also reveals whether now is the right time to sell or if improving key metrics could substantially increase your exit outcomes.

SaaS companies are typically valued using multiples of Annual Recurring Revenue (ARR). This means your valuation is your ARR multiplied by a specific number — your multiple.

For example, if your company generates $10 million in ARR and receives a 6x multiple, your business is worth approximately $60 million. Change that multiple to 4x, and you’re looking at $40 million instead. That $20 million difference affects your entire deal, from the final sale price, how the deal is structured (earnouts vs. cash at close), and your exit timeline.

Aaron Solganick, CEO of Solganick & Co., has been seeing multiples ranging from “3x–5x ARR for smaller SaaS companies to 7x–12x for mid to large companies that are showing consistent growth.” Understanding where your company falls requires examining the factors that drive these valuations.

Key Valuation Factors

Your specific multiple depends on several factors that buyers use to assess risk, including:

Company Size and Growth Rate

Larger companies command higher multiples due to the “size premium.” Larger companies are often more stable. They have proven their business model at scale and, as a result, attract a wider pool of buyers.

As Solganick explained, “If you’re at $5 million or $10 million in ARR, your multiple will be several points lower than a company at $50 million or $100 million in ARR. Generally, for every $20 million increase in ARR, you gain a point or two on your revenue multiple.”

Your growth rate also plays a part in determining your multiple. Buyers pay premiums for businesses showing strong, consistent growth because it indicates market demand and scalability. Predictable growth patterns are more valuable than erratic spikes and declines.

Profitability and the Rule of 40

While SaaS companies don’t need to be profitable to command strong multiples, the market increasingly focuses on the balance between growth and profitability. Many high-growth software companies are intentionally not profitable because they’re reinvesting heavily in R&D and customer acquisition to drive top-line revenue growth. This approach is acceptable when growth justifies the investment.

The Rule of 40 provides a useful benchmark here. This metric states that if a SaaS company’s revenue growth rate plus its EBITDA margin equals or exceeds 40%, it will typically receive a market or above-market valuation multiple. For example, a company growing 40% year-over-year with break-even profitability meets the Rule of 40. Similarly, a company with 25% growth and 15% EBITDA margins qualifies (25% + 15% = 40%).

Customer Retention Metrics

Two companies with identical ARR aren’t worth the same if one is losing customers while the other is growing accounts. Net Revenue Retention (NRR) measures the percentage of revenue you retain from existing customers, including expansion revenue from upsells and cross-sells. An NRR above 100% means you’re growing revenue from your existing customer base even before acquiring new customers.

Low churn rates demonstrate strong product-market fit and reduce buyer concerns about revenue sustainability post-acquisition. Low monthly churn rates signal to buyers that your customers are satisfied and your revenue is predictable.

Customer Acquisition Economics

Buyers scrutinize your LTV:CAC ratio (customer lifetime value divided by customer acquisition cost) because it tells them whether investing more in customer acquisition will generate profits or losses.

According to Phoenix Strategy Group, the target benchmark is at least 3:1, with best-in-class companies reaching 4:1 or higher. If your acquisition costs are too high relative to what customers pay you over their lifetime, it signals that growth will burn cash rather than create value — resulting in lower multiples or deal structures heavily weighted toward earnouts.

Customer Concentration Risk

If your largest customer represents a significant portion of your ARR, buyers will see risk.

In our interview with Solganick, he recommended that “no single customer should represent more than 10% of your revenue.” High customer concentration can scare off private equity buyers entirely or result in substantially lower valuations. The loss of that single customer could materially impact your business, which buyers factor into their offers through lower multiples or earnout structures that protect them if key customers churn post-acquisition.

Market Position and Timing

Companies in high-demand sectors like AI, data analytics, cybersecurity, and advanced applications are receiving higher multiples due to exceptional buyer demand.

“AI-enabled companies remain in high demand from buyers,” says Solganick. “There’s so much money going into AI between new investments and add-on acquisitions. Buyers are acquiring all shapes and sizes of companies to get into AI right now.”

Market timing matters as well. Solganick has seen that the SaaS M&A market has recovered from its 2022–2023 lows, with more buyers active and valuations trending upward.

For more information on valuation, you can read:

• How to Value a Technology Company
• Tech Company Valuation Multiples
• SaaS Multiples: A Guide for Business Owners
• How to Value a Company for Sale

Types of Buyers: Strategic vs. Financial Acquirers

When you’re selling your SaaS company, understanding the different types of buyers helps you evaluate offers more effectively and decide which acquisition path aligns with your goals.

Broadly speaking, there are two main buyer categories: strategic buyers and financial buyers.

Strategic Buyers

Strategic buyers are other software companies — often larger than yours — acquiring you to expand their product offerings, enter new markets, or acquire your customer base. These buyers typically offer the highest multiples because they can realize synergies by combining sales teams, cross-selling products, and eliminating duplicate costs.

When you sell to a strategic buyer, you usually exit completely. They’re buying 100% of your company, and while you might stay on for a transition period, you won’t retain equity. The advantage is maximum cash and a clean break. The risk is that your product might eventually get absorbed or sunset if it doesn’t fit perfectly with their strategy.

As Solganick explains, “Sometimes you’ll find a strategic buyer who really wants your customer base. Maybe you’re a $25 million software company, but they’re selling to enterprise customers already, and your product can be cross-sold to every one of their clients. That potential for synergy drives valuation.”

Financial Acquirers

Financial buyers acquire companies as investments, aiming to grow them over 3–5 years and sell them again at higher valuations. Unlike strategic buyers who care about how your company fits with theirs, financial buyers evaluate your business on standalone financial performance and growth potential.

The two main types of financial buyers are institutional investors (including private equity firms and family offices) and high-net-worth individuals or search funds.

Let’s look at how private equity firms acquire companies. They acquire majority control (typically 60–80% of your company) while you keep 20% rollover equity and stay on as CEO or in a senior role. The PE firm backs you with capital and operational expertise to grow faster — often through add-on acquisitions, where you acquire smaller companies to bolt onto your platform.

For founders, PE deals offer the “second bite of the apple.” You take significant cash off the table now while keeping enough equity to benefit from future growth. If partnering with the PE firm successfully grows your $10 million ARR company to $50 million and sells it at a higher multiple in 5 years, your 20% equity stake in that second transaction can equal or exceed what you made in the first sale.

The tradeoff is that you’re no longer in complete control. The PE firm will push for aggressive growth, bring in their own operational expertise, and ultimately make decisions based on maximizing their return when they sell.

Meanwhile, high-net-worth individuals / search funds raise capital to acquire and run a single business. Unlike PE firms with large funds, they’re looking to acquire one company that they’ll run as CEO.

These buyers can offer flexibility that larger buyers can’t: faster decisions, creative deal structures, and willingness to consider smaller companies that don’t meet PE firm minimums.

However, they face challenges competing against well-funded strategics and PE firms. As Solganick notes, “Search funds go through a lot of deals before getting one done. They have to go back to their investment committees for approval, and they can’t compete when a big strategic buyer is willing to pay more.”

M&A Advisors Don’t Generally Only Target One Type of Buyer

Keep in mind that the above categories are generalizations and there are exceptions. 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 Solganick don’t recommend focusing on only one buyer type before going to market. As he noted, “Many sellers initially rule out certain buyer types — ‘too big,’ ‘too corporate,’ ‘PE will change everything’ — but end up selling to the buyer they initially dismissed. Why? Because when the owner started having conversations with buyers, they had a different perspective on who was the best fit for their business.”

When you work with an M&A advisor who has the right experience to handle your exit, they can successfully create a competitive bidding process that brings 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 valuation, you can read:

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

SaaS Deal Structures: Cash, Earnouts, and Equity Considerations

Most SaaS transactions don’t involve simple all-cash deals. Instead, they include some combination of cash at close, rollover equity, and earnouts. The specific mix depends on the buyer type and your overall exit goals.

Understanding these components helps you evaluate offers properly. A seemingly generous offer might have unfavorable earnout terms, while a lower cash-at-close offer could actually provide more total value once you factor in rollover equity and the second bite opportunity.

Cash at Close and Tax Implications

Cash at close is the immediate liquidity you receive when the deal closes. The amount varies significantly based on buyer type and deal structure.

Individual buyers in smaller deals may offer more cash upfront (if they can secure financing), especially when they want a clean break with no ongoing involvement. PE firms typically offer less cash upfront because they want you invested in the outcome — skin in the game ensures smooth transition and continued growth.

But more cash at close isn’t necessarily ideal. Solganick emphasized that owners want to consider the tax implications of cash at close. All-cash deals create a significant tax burden that can dramatically reduce your actual take-home. A large cash payment in a single year can push you into the highest tax brackets, potentially costing you 35–40% or more in federal and state taxes.

This is why many sellers prefer mixed structures, even when they could get all cash. By spreading proceeds across cash, earnouts over multiple years, and rollover equity that gets taxed when you eventually sell it, you can significantly reduce your total tax burden. Working with tax specialists to optimize the deal structure can increase your after-tax proceeds substantially.

Rollover Equity: The “Second Bite”

Rollover equity means you reinvest part of your proceeds into the combined company post-transaction. While this reduces your immediate cash, it provides upside potential if the buyer successfully grows the business.

With strategic buyers, Solganick often sees a typical rollover of 10–20% of transaction proceeds, or roughly 10% of the combined business. Your product and customers plug into their existing infrastructure, salespeople, customer base, and distribution channels.

As Solganick explained, “If you’re being acquired by Microsoft or Oracle or somebody really big, they’re going to have an army of salespeople. You’re going to plug your products into what they’re doing and they can cross-sell to their clients.”

Because of that distribution advantage, a $10–20M company can reach $200M+ in revenue, making your rolled-over equity significantly more valuable.

So while higher rollover equity means lower cash at close, the upside potential is significant. PE firms typically hold software companies for 3–5 years, during which they work to increase both revenue and the valuation multiple.

As Solganick noted, sellers can often receive equal to or more than their initial sale price on the second transaction. “Let’s say you sell for $15M cash plus 20% rollover equity. Five years later, the company sells for $200M. Your 20% stake equals $40M or nearly three times what you initially received at close.”

Earnouts: Bridging Valuation Gaps

Earnouts are future payments based on hitting specific performance metrics. In our interview, Solganick shared that “earnouts are common in smaller deals ($5M–$30M ARR) and typically represent 20–30% of total deal value.”

From the buyer’s perspective, earnouts serve several purposes: they ensure stability and smooth integration, verify that customers and revenue stay post-transaction, reduce risk on forward projections, and bridge valuation gaps when buyer and seller disagree on current value.

The question isn’t so much whether your deal will have an earnout, but whether the earnout structure and agreement are fair.

Earnouts are typically based on customer retention, revenue milestones, or ARR performance over 2–3 years, with payments every 12 months. The structure of these earnouts matters enormously.

Solganick advises that you want to “avoid ‘all or nothing’ structures.” If you hit 90% of your target, you should get partial credit, not zero. An “all or nothing” earnout means you hit 100% of the target and receive the full payment, or you hit 90% and receive nothing. A well-structured earnout pays you proportionally — if you hit 90% of targets, you receive 90% of the earnout payment.

The structure of the earnout — including metrics, reporting, and payment mechanisms — is heavily negotiated, often with the help of advisors and attorneys. It’s negotiated to avoid an “all or nothing” situation if targets are narrowly missed. M&A advisors also ensure that the buyer can’t undermine your ability to hit targets and that measurement methodology (such as revenue recognition according to GAAP), reporting mechanisms (who calculates, how often), and dispute resolution processes are clearly defined.

To give an example of a fair and competitive earnout, Solganick shared a client situation: “We had a client with long-term contracts coming up for renewal right after the sale. The PE firm calculated the risk of non-renewal and offered less cash upfront with an earnout tied to those renewals. We negotiated a structure where the seller got 75% credit for renewals happening within 90 days of the target date, protecting them from factors outside their control.”

Seller Financing

Seller financing is another deal structure component, though less common in SaaS transactions than earnouts or equity rollovers. In a seller financing arrangement, the seller effectively loans part of the purchase price to the buyer, who pays it back over time with interest.

This structure can make deals possible when buyers can’t secure full financing from banks or when there’s a valuation gap between buyer and seller expectations. For sellers, it can result in a higher total purchase price and provide ongoing interest income, though it also means waiting for full payment and taking on risk that the buyer might default.

Seller financing typically involves the buyer paying 25–30% upfront as a down payment, while a portion of the remainder is seller financed. The seller maintains a lien on the business assets until the loan is fully repaid, providing some protection if the buyer defaults.

Seller financing can benefit both owners and buyers. A buyer will pay less interest than they’d get on a bank loan, making it a more lucrative deal for them. As an owner, you can get a higher valuation plus earn interest on the money until it’s paid.

Evaluating Deal Structures

These different components — cash, earnouts, rollover equity, and seller financing — can be combined in countless ways. Buyers will present offers with different structures that can be challenging to compare.

One might offer higher upfront cash with a smaller earnout. Another might emphasize rollover equity with significant upside potential. A third might propose seller financing that increases the total purchase price but delays full payment.

An experienced M&A advisor helps you evaluate which structure actually serves your exit goals best. They work with your tax advisors to minimize tax burden, assess whether earnout metrics are achievable, and determine how much equity you should roll over based on your confidence in the buyer and the growth potential of the combined company.

How to Achieve Your Ideal Exit with the Right M&A Advisor

The right M&A advisor can meaningfully improve your exit outcomes — not just on price, but on deal structure, timeline, and stewardship.

The problem is that most SaaS owners find advisors through word-of-mouth or online searches. A referral tells you the advisor worked well for someone else, while a website tells you that the advisor markets themselves well. Neither tells you whether they’ve actually closed deals like yours.

At Axial, we’ve built a network of over 3,000 M&A advisors and investment banks, with data on thousands of deals marketed through our network. Rather than generic referrals, we analyze each advisor’s actual transaction history to match you with someone who has the right experience for your specific situation.

We start by pairing you with an Exit Consultant who learns about your business and exit goals. Your consultant then identifies advisors based on three criteria:

• Relevant deal experience: Has this advisor recently sold SaaS businesses similar to yours in size, business model, and market? We prioritize transactions from the last 24 months to ensure current market knowledge.

• Down-funnel success: Can this advisor convert buyer interest into actual offers? We track metrics like the number of qualified bids generated per transaction and their success rate in closing deals — the kind of competitive bidding process we described earlier in this guide.

• Professionalism and reputation: Our relationship management team works directly with the advisors in our network. They have a clear view into each advisor’s responsiveness, communication, and track record with past clients.

From there, we create a shortlist of 3–5 advisors specifically qualified for your SaaS exit. We provide detailed insights on each candidate and help you prepare for advisor interviews so you can make an informed decision.

If you’re considering selling your SaaS business, schedule your free exit consultation.