SaaS M&A: A Guide for Business Owners Considering an Exit

Selling your SaaS business is likely the most significant (and complex) financial transaction of your career.

It involves understanding your business, not as an owner, but as a financially motivated, risk-conscious buyer. It involves navigating deal structures with earnouts and rollover equity, understanding the deal’s tax implications, and negotiating your post-sale role — all of which shape your exit.

When you work with a SaaS M&A advisor, they’ll help you navigate through the entire process, from your initial valuation to negotiations and signing the actual deal agreement. Data supports that working with the right M&A advisor can increase your final sale price.

In our experience, backed by hundreds of thousands of deals across our network, the right M&A advisor helps you achieve your ideal exit—not just on price, but on timeline, deal structure, and stewardship.

But as an owner, you want to have a strong understanding of the M&A process, as you will be involved in discussions and negotiations. Ultimately, you’re the one who has to decide whether or not you want to take the deal that’s been offered to you.

In this article, we look at:

• Understanding SaaS M&A: What to Expect as an Owner. This includes information on how buyers evaluate SaaS companies, different buyer types in the market, and typical deal structures.

• How to prepare before hiring an M&A advisor. We speak with hundreds of M&A advisors and business owners, and a common theme in those discussions is that owners are often not prepared to take their business to market. This can include inaccurate or incomplete financial and operational information, and not being emotionally committed to the exit.

• How Axial helps you find the best SaaS M&A advisor for your company. At Axial, we have over 3,000 M&A advisors and investment banks within our network. We’ve helped pair all types of SaaS companies with the right M&A advisor. This includes HR tech platforms, GovTech solutions, enterprise software, data analytics tools, and contact management systems, all with revenue ranging from $5M to $100M+. We use industry knowledge, proprietary data, and 14+ years of experience in M&A to help you find, evaluate, and hire the right M&A advisor.

If you’re interested in selling your SaaS business, schedule your free exit consultation today.

Understanding SaaS M&A: What to Expect as an Owner

Before you start looking for an advisor, understanding what makes SaaS M&A different from traditional business sales helps you evaluate your options and prepare effectively.

How Buyers Evaluate SaaS Companies

The value of your company will be expressed as multiples of your Annual Recurring Revenue (ARR). According to Aaron Solganick, CEO of Solganick & Co., a data-driven investment bank focused exclusively on software and IT service companies, current market conditions show “multiples ranging from 3x–5x ARR for smaller SaaS companies to 7x–12x for mid to large companies that are showing consistent growth.”

But your specific multiple depends on how buyers evaluate your business performance within the greater context of the market and their motivations. Buyers analyze several key metrics to determine where you fall in that range.

• Growth and profitability tend to matter most. The Rule of 40 — where your growth rate plus EBITDA margin equals or exceeds 40% — provides buyers a quick assessment of whether you’re balancing these effectively. A company growing 30% annually with 15% EBITDA margins hits 45%, signaling a sustainable business model that commands premium valuations.

• Customer economics comes next. Buyers scrutinize your monthly churn rate (they look for below 2% for B2B SaaS) and your LTV:CAC ratio (ideal range is 3:1 to 4:1). These metrics tell them if your customers stick around and whether acquiring new customers generates profitable growth.

• Operational efficiency and risk round out the picture. Gross margins should exceed 75%, with best-in-class companies above 85%. Customer concentration matters too — no single customer should represent more than 10–15% of revenue, as losing one customer could devastate your business. Further, it’s better if your top 5 customers don’t account for more than 25% of your business.

You can read more on key SaaS metrics here.

Beyond metrics, how you position your business determines which buyers you attract and how they value you.

We worked with a company building AI technology for pharmaceutical research that faced a fundamental question: were they an AI company serving pharma, or a pharma company using AI?

If they positioned themselves as an AI company, they’d attract tech buyers — larger AI platforms and private equity firms building AI portfolios. These buyers would evaluate them on AI technology metrics: model accuracy, data processing capabilities, and scalability across industries.

If they positioned themselves as a pharma company, they’d attract pharmaceutical buyers — drug manufacturers and healthcare-focused PE firms. These buyers would evaluate them on pharmaceutical market metrics: regulatory knowledge, relationships with drug companies, and depth of pharma-specific features.

Same company, but with entirely different buyer pools, evaluation criteria, and valuations. An advisor with experience in your specific market understands which positioning aligns with your actual competitive advantage and which buyer networks to target.

Common Buyer Types and What They’re Looking For

The type of buyer who acquires your company shapes everything about your exit — from the valuation multiple you’ll receive to the deal structure, how much equity you’ll keep, to the role you’ll play after the sale. Buyers fall into two main categories based on what motivates them to acquire your business.

Strategic Buyers: Companies Growing Through Acquisition

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 Buyers: Investors Building Value to Resell

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.”

For more information on buyer types, you can read our articles:

• Strategic vs Financial: Find the right Buyer for Your Exit
• How to Find a Buyer for Your Business

Typical Deal Structures (And Why They’re Complicated)

SaaS deals rarely involve straightforward cash-at-close transactions. According to Solganick, a typical deal for a smaller SaaS company includes several components:

• Cash at close: Usually 60–80% of total value
• Earnouts: Typically 20–30% of the deal, paid over 2–3 years if you hit specific targets (often tied to revenue retention, growth milestones, or customer metrics)
• Rollover equity: If selling to private equity, you’ll often keep 20% equity in the combined company for a potential “second bite” when they sell again
• Employment agreements: Buyers want you to stay for 2–3 years to ensure smooth transition

Understanding these structures matters because the headline valuation doesn’t tell the full story. Consider an owner who received two offers: Offer A at 10x ARR and Offer B at 8x ARR. On the surface, Offer A looked obviously better.

When their advisor broke down the structures, the picture changed:

Offer A (10x ARR):

• 50% cash at close
• 50% earnout over 3 years tied to aggressive growth targets (40% year-over-year growth)
• If they missed targets by even 10%, they’d lose most of the earnout
• Three-year employment agreement with non-compete

Offer B (8x ARR):

• 80% cash at close
• 20% earnout over 2 years tied to customer retention (keeping churn below 3% monthly)
• Proportional earnout payout (if they hit 90% of the target, they get 90% of the earnout)
• Two-year employment agreement with non-compete

When you calculate the realistic expected value, factoring in the probability of hitting each earnout target, Offer B is actually worth more than Offer A. Plus, Offer B’s earnout terms are achievable and include proportional payouts, while Offer A is all-or-nothing on aggressive growth that might not be realistic.

An experienced M&A advisor can decode these structures and help you understand what you’re actually getting. The structure matters as much as the headline number.

Timing Your Exit (And Why It Can Cost You Millions)

Here’s a common story: A SaaS company with strong financials and impressive metrics wants to start the M&A process immediately. They have interested buyers and are ready to sell.

The problem: several of their largest contracts are coming up for renewal in three months. These contracts represent significant portions of their ARR. If they go to market immediately, every buyer would see these pending renewals as risk. Buyers would ask, “What if these customers don’t renew? What if they negotiate lower rates?”

That risk shows up in the deal structure. Buyers will offer less cash upfront and structure deals with earnouts tied to those renewals. The company would get paid less now and only receive full value if those contracts renewed — shifting the risk onto the seller.

In these cases, an M&A advisor may advise that you wait for those contracts to renew first, then go to market with certainty about that revenue rather than risk. The difference between going to market before versus after those renewals could mean 60% cash at close versus 80% cash at close, plus better earnout terms tied to achievable metrics rather than uncertain renewals.

The M&A Process Timeline

When we spoke with Solganick, he shared that from engaging an M&A advisor to closing a deal, expect approximately six months. This breaks down to 3–4 months of marketing your business and generating buyer interest, then 60–90 days of due diligence and closing after you sign a Letter of Intent with a buyer. Of course, these are averages, and there are exceptions.

A key way that you, as a business owner, can expedite your timeline is by thoroughly preparing for your exit. You should start exit preparation 6–12 months before engaging an advisor. This preparation phase involves organizing your metrics, upgrading accounting systems if needed, addressing customer concentration issues, and thinking through your exit goals.

What to Prepare Before Engaging an Advisor

Before you reach out to advisors, spend time organizing your business for M&A.

Get your metrics organized. Buyers will scrutinize your SaaS metrics closely. You need clean, trackable data on Annual Recurring Revenue (ARR) and Monthly Recurring Revenue (MRR), customer churn rate (monthly and annual), Customer Acquisition Cost (CAC) and Lifetime Value (LTV), gross margins (should be 75%+ for SaaS), revenue growth rate, and cash flow and EBITDA.

Upgrade your accounting systems if needed. As Solganick explains, “Most privately held software companies between $5 million and $50 million in revenue are still using basic accounting systems like QuickBooks. You need to upgrade your systems and get your KPIs buttoned up.”

Move to systems that properly track deferred revenue, revenue recognition, and cohort analysis. Buyers expect sophisticated financial reporting — especially larger publicly traded companies and private equity firms.

Address customer concentration. If one customer represents 30–40% of your revenue, that’s a significant risk factor that will lower your valuation or result in earnout structures. Ideally, no single customer should represent more than 10–15% of revenue. If you have concentration issues, spend time diversifying your customer base before going to market.

Think through your goals. What do you actually want from this exit? Complete exit with maximum cash? Rollover equity for a second bite? Staying involved in a specific role? Your goals should drive your positioning, timing decisions, and which advisors you work with.

For more information on exit preparation, you can read our articles on:

• Business Exit Planning: Set and Meet Your Exit Goals
• A Checklist for Selling Your Business

How Axial Helps You Find the Right SaaS M&A Advisor

The complexities above show why you need an advisor with relevant SaaS experience. You want an M&A advisor with recent and relevant experience to help you secure your ideal exit, but finding that advisor is its own challenge.

Business owners typically take one of three approaches: word-of-mouth referrals (limited network, may not fit your specific situation), independent research (time-consuming, hard to assess actual track record), or working with the first advisor who reaches out (no comparison point).

At Axial, we’ve built a network of 3,000+ M&A advisors with 14 years of transaction data. We track which advisors have closed deals in your sector. We analyze down-funnel success: how many NDAs turn into Indications of Interest, how many IOIs turn into Letters of Intent, and how many LOIs turn into closed deals. We also evaluate professionalism and reputation from past clients.

This means you get 3–5 advisors matched to your specific situation, not generic referrals. Each advisor has demonstrated experience with SaaS transactions. You can compare advisors based on actual performance data, not just marketing materials.

The process works like this:

• First, you speak with an Exit Consultant who learns about your business — your ARR, growth trajectory, customer metrics, and what you’re hoping to achieve from an exit.

• Second, we help you understand what to expect in the M&A process. This includes explaining timing considerations (like the contract renewal example above), typical deal structures in the current market, and what different buyer types are looking for.

• Third, we create a shortlist of 3–5 advisors with relevant experience. We prioritize advisors who have recently closed deals for companies similar to yours in size, business model, and market. We look at their proven ability to generate competitive bidding — how many qualified buyers they typically bring to the table. We review their track record of closing SaaS transactions within the Axial network.

• Finally, you interview these advisors (and we’re here to help you make the final decision). We provide detailed insights about each candidate to help you evaluate your options and prepare for those conversations.

Schedule a free exit consultation today to learn more.