Today we have The 2024 SaaS M&A Report fresh off the presses.

Below, I cover revenue multiples, EBITDA multiples, top buyers, top deals, the most commonly used investment banks, and how to prepare your software firm to exit for a strong multiple.

If you’re thinking about selling your software company in the next couple years, take 5 minutes and read this report below.

And if you’re not yet a SaasRise member, apply to join us here for more killer, fresh, and data-driven content like this. We welcome all SaaS founders and CEOs with $1M-$100M in ARR to join our SaaS growth mastermind community.

Now, let’s jump right in to the report!

The SaaS M&A Report 2024

Below, I cover the top software investment banks, average and median M&A multiples, and how to prepare to sell your software company.

Over the last week, I’ve analyzed all 3,493 private software M&A transactions that occurred in 2023. I’ve learned a lot.

But first, here are links to all the resources and Google Sheets mentioned in this report. Enjoy!

• All Software M&A Deals in 2023

  • Private M&A Deals in 2023

  • Public M&A Deals in 2023

• Summary Stats - 2023 Private Software M&A Deals

• Software M&A Deals by Year

• Top Software Acquirers of 2023

• Top Software Investment Banks of 2023

• Top Software Investment Banks - Under $100M Deals

• Median SaaS Revenue Multiples - Venture Deals

SaaS M&A Deals on The Rise

As I reported last month in the SaaS VC Report, while SaaS venture deal valuations peaked in 2021/2022, SaaS M&A activity in 2023 was the 2nd highest ever, and materially higher than 2020 or 2021. SaaS is definitely here to stay. 

Here’s the SaaS M&A Deal chart, using data from our friends at Software Equity Group.

Takeaways from Analyzing 3500 Software M&A Transactions

In 2023, there were 3,493 private software M&A transactions, including 2062 SaaS transactions and 1431 traditional software transactions. Here’s what I saw when we did the analysis.

Keep in mind, the medians are a better picture of what is most common to see, as deal averages can be greatly affected by the large outliers. Case in point: just because the average software M&A revenue multiple was 8.42x in 2023 – the median was 2.04x. 

Many a software CEO has gotten unnecessarily disappointed by comparing themselves to the mean exit revenue multiple when they should be actually comparing themselves to what’s most common (the median).

The SaaS Revenue Multiple Bump

Another important note is that the above M&A statistical summary is for ALL software firms, not just SaaS firms. 

When you just look at just the 56% of software firms that use a recurring revenue software as a service (SaaS) business model, the median M&A exit revenue multiple more than doubles from 2.04x to 4.40x, per data from Software Equity Group or 5.1x revenue using data from Aventis Advisors.

So, if you’re stuck in the world of on-premise or transactional software sales – move to SaaS.

Now that’s a compelling bar chart extolling the virtues of the recurring revenue annuity stream that comes from the software-as-a-service business model!

What about EBITDA multiples?

The average EBITDA multiple among profitable private software firms that were acquired in 2023 was 13.5X. Pure SaaS plays get a bit of a further multiple bump over traditional software companies. Across a sample size of 144 SaaS M&A deals tracked by Aventis Advisors, the median 2023 EBITDA multiple was 22.4x.

The Top Private M&A Exits of 2023

Here' were the largest software M&A deals in 2023. There were 17 software M&A deals done at a $1B+ exit valuation last year.

Who’s Buying: The Most Active Software Company Acquirers

Among the 3,338 software M&A deals in 2023 that had the buyer listed, these were the 22 firms that made at least 4 acquisitions. You can see the full list of top acquirers here.

Valsoft, Cisco, Total Specific Solutions, IBM, N. Harris Computer, Snowflake, Accenture, and Vela Software were the most prolific acquirers of 2023. 

What I Learned from My SaaS Exit for $169M

There’s much more analysis below on the top software investment banks, buyer types, as well as EBITDA multiples, but first, some tips from my own experience building and selling iContact.

Back in February 2012, I sold my company iContact for $169 million (3.5x ARR) to a public company called Vocus (now called Cision). We didn’t use an investment banker on the transaction in part because we had JMI Equity and Updata Partners, our venture investors, helped us ensure we got good terms. 

We considered selling to Salesforce for $95 million in 2010. However, Marc Benioff at Salesforce backed out at the last minute (to later buy ExactTarget instead).

After Salesforce backed out, we decided to raise a Series B. We used Allen & Co. as our investment banker for that Series B. They helped us raise $40M from JMI Equity, who later helped us secure a strong outcome for the business. In that round, we took $25M to the balance sheet and $15M in secondary shares. You can read the Harvard Business School case study about the transaction here.

Then in 2012 we were approached by the CEO of Vocus and they decided to acquire us for $169M. Here’s what I looked like on February 28, 2012 when the sale was announced. I was 27 at the time. It was a fun moment after ten years of hard work scaling iContact to 250 employees, 70,000 customers, and $50M ARR.

I learned a lot in that exit process. After selling the company, I took a couple years off to get an MBA at Harvard Business School. 

These days, I’m focused on building the SaasRise community and coaching SaaS CEOs in scaling up their organizations and preparing for successful $100M+ exits (and writing in-depth reports like this!). If you’re a CEO or founder of a SaaS firm with $1M-$100M in ARR, apply to join us here.

The Five Big Questions to Ask Before Selling Your Software Firm

When you’re getting ready to sell your SaaS firm, the key questions to ask are:

1. Do you want to sell based on revenue growth or EBITDA? The median SaaS revenue multiple in 2023 for M&A transactions was 4.40x while the median EBITDA SaaS multiple was 22.4x. Decide up front if you want to a) go for revenue growth at all costs b) go for revenue growth as long as the CAC payback period is reasonable (say, within 12 months), or c) cut all unnecessary costs and go for maximizing EBITDA before you sell (the PE playbook) → as this one decision will impact your operating plan in the 12 months before you sell. 
   

2. Will you use an investment bank or not? I recommend it. A good M&A advisor will pay for themselves many times over. They might charge 3-5%, but they will increase the valuation of your firm by 10-20% just by being involved, helping you prepare your data and company, and getting multiple bidders at the same time.
   

3. If so, which investment bank should you use? This will depend a bit on your current ARR and growth rate. Below I list some of the top software focused investment banks.
   

4. How much of the transaction are you willing to make variable via a performance-based earn out? I recommend as little as possible. While you might get a bit more if you make it based on performance, it’s rather challenging to directly impact results once you’re no longer actually in control of the business. And few founders want to become professional managers for too long.
   

5. How long are you as CEO/Founder willing to stick around after the sale closes? In most situations, I recommend getting out as soon as you can, with 12 months the maximum. The only exception to this is if you’ve tied a large amount of your compensation to a performance-based earnout or equity in the acquiring company and have chosen to stick around because you want to be part of building something bigger. 

This was our Executive team at the time of our exit in 2012. We had invested heavily in building out a team of leaders with experience scaling up a high growth software company.

Tips to Prepare Your Software Firm For An Exit

Here are some tips for preparing your software firm for an exit at maximum value. These are many of the areas I focus on when I take on consulting assignments to help SaaS CEOs prepare their companies for $100M+ exits.

1. First, decide if you want to exit based on revenue growth or EBITDA multiple. You can expect around 2-10x revenue multiple at sale depending on how fast you’re growing (2023 SaaS Revenue Multiple Median = 4.4x) . You can expect around a 10-50x EBITDA multiple at sale depending on how fast you’re growing (2023 SaaS EBITDA Multiple Median = 22x).
   

2. If you want to exit based on revenue multiples then build your sales and marketing team and invest aggressively in customer acquisition from the major channels including digital advertising, outbound campaigns, integrations, and tradeshows – and ramp up your SDR and AE teams if your ACV is >$10k. 

   1. See my SaaS Marketing Checklist or hire us to scale up your customer acquisition pre-exit. We focus a lot on scaling up paid acquisition for SaaS firms via Facebook, Instagram, Google Search, Google Display, Bing Search, Bing Display, LinkedIn, and Adroll – using a combination of search ads, retargeting ads, lookalike audiences, and custom ABM audiences.
      

3. Focus on getting your churn down (ideally under 3% per month for an SMB firm and under 2% per month for a midmarket firm, and under 1% per month for an Enterprise firm). See if you can get your net revenue churn to be positive – meaning the among you’re gaining from existing customer upgrades outweighs the amount you’re losing from customer churn. Firms with positive net revenue churn and monthly account churn percentages <2% tend to get the highest premiums on their valuations. Check out the SEG SaaS Valuation Scorecard for 20 Factors that go into estimating a firm’s exit valuation.
   

4. If you want to exit based on revenue multiples, build out your C-level team and put in place a top quality COO, CFO, CRO, CTO, and CPO over time. Your goal should be for the company to be able to operate without you. Learn to work ON the business not IN the business. To test how you’ve done, take a 1-2 months off for a vacation and if the company isn’t stronger and doesn’t have more customers and revenue when you departed – you’ve haven’t set up your team to be exit ready – and you may end up getting stuck in a 2 year earn out transition post-exit.
   

5. If the revenue growth just isn’t there, but you’re profitable and you want to exit based on an EBITDA multiple – cut all unnecessary expenses for 1-2 quarters and THEN hire a banker and go to market using your projected annual EBITDA. If you can reasonably show $1M+ in projected annual EBITDA, you should be able to hire a good midmarket investment banker, get multiple deal offers from PR firms and strategics, attract a 10-25x EBITDA multiple and have a nice exit. 

I’m available for coaching and consulting with SaaS CEOs who are getting their firms ready to exit. You can reach out to me here. This is what I do all day long and it’s the industry I’ve been focused on since co-founding iContact in 2002 as one of the very early SaaS firms. The value of working together to scale up your company and package it for sale could be doubling the exit value of your firm.

The Top Software Investment Banks

You’ve seen above how helpful the right investment bank can be to a sale.

An investment banker helps market your company confidentially to potential strategic buyers (usually public companies or well capitalized private companies) as well as to financial buyers (PE Firms). The question of course, is who to choose.

If you are smaller than $5M in ARR, you may have to use a platform like Acquire.com or Axial to list and sell your company – or use your own network to find a buyer.

However, once you get into that $5M+ ARR range, more options open up for you – and more investment banks will be willing to work with your firm for a percentage of the sale value that usually ranges from 3-5% depending on the price achieved.

While it may take over $100M in EBITDA to get Goldman Sachs or JP Morgan to be your banker, others are more approachable and accessible for mid-market firms.

In the 520 private software M&A deals in 2023 where the investment bank was noted, the 30 firms that were mentioned at least four times were:

You can see the full list here of all 317 investment banks that completed at least one tracked software deal in 2023. 

The Top Mid Market & Small Deal Software Investment Banks

While this is a good table ranking of the top software investment banks, some of these bulge bracket and blue chip firms are simply out of reach for smaller software companies as they only work with the very largest of private companies who have $100M+ in ARR. 

So let’s see who the most common ibankers are for mid-sized deals. In 2023, the 14 firms that did at least two software deals under $100M in exit value (that were tracked in per Pitchbook) were as follows…

Many of these firms, in actuality, did many more transactions than shown above, they simply weren’t publicly announced or tracked in Pitchbook – or if they were the sale price wasn’t announced and as such they didn’t make the <$100M chart above.
Many of the smaller <$100M transactions aren’t listed. So in doing my own separate research, here were the top lower and mid-market software investment banks who specialize in SaaS transactions.

• Shea & Co

• Aventis Advisors

• Software Equity Group

• ValleyBiggs

• Array Capital 

Let me know if there are other SaaS focused mid-market banks. We are actively building partnerships to funnel our SaasRise members to.

Types of Acquirer: Strategic vs. Private Equity

There are two major types of buyers in the marketplace for software companies: strategic buyers and private equity firms. 

A strategic buyer is an operating company that tends to want to grow the purchased asset while a PE buyer is a private equity firm that tends to want to maximize cash flow from the purchased asset.

In 2023, Software Equity Group saw SaaS M&A deals breakdown as follows:

• Private Strategy Buyers - 16.8% of deals

• Publicly Traded Strategic Buyers - 23.2% of deals

• Private Equity Backed Strategic Buyers - 50% of deals

• Private Equity Fund Buyers - 10% of deals

SaaS Revenue Multiples Remain Strong

Even though average SaaS revenue multiples have come down since 2021/2022, they still remain much higher than a decade ago – as the investment community has realized the staying power of recurring cloud revenue. 

According to Bessemer Venture Partners Cloud Index, the median revenue multiple of a publicly traded SaaS company is 5.98x, down from a peak of 18.43x in September 2021. It makes sense that these multiples would be lower in public companies, as the firms in their index are larger and and thus don’t grow as quickly. The average publicly traded firm in the BVP Cloud Index is growing at 20.5% annually.

We see similar data in the SEG SaaS Index, which is showing an average public company SaaS revenue multiple of 6.2x.

Because of the compelling business model of SaaS (recurring revenue annuity streams), SaaS firms command a higher revenue multiple than most industries.

Considering that a venture-backable SaaS company is likely growing revenues at between 50%-200% per year, it’s no surprise that revenue multiples for venture-backed SaaS firms are higher than the average company. 

Venture deal multiples are higher than M&A exit multiples – as the venture firms usually invest earlier, have preferred shares and liquidation preferences, and firms that take on equity capital are usually the ones that are growing the very fastest (over 50% per year) and thus can command higher revenue multiples than the average M&A deal where the firm is later stage and annual revenue growth rates may be more in the 10-50% range.

In 2023, we saw median venture investment revenue multiples in the 8-12x range, with a median deal at 10.89x. It’s important to keep in mind, this is for the most successful SaaS companies that are venture backable. Most SaaS firms that aren’t growing as quickly will trade at more like 3-5x ARR.

Below, let’s look at this in chart form. It’s clear that software venture revenue multiples peaked in 2021/2022 and then came back to Earth in 2023. Yet, they still remain high compared to a decade ago – and much higher than nearly any other industry.

Even though average revenue multiples have come down since 2021/2022, they remain much higher than a decade ago – as the investment community has realized the staying power of recurring cloud revenue.

What revenue multiple can you expect for your SaaS firm in a venture round or at an exit? Well, it depends on how fast you’re growing. Here’s a handy chart designed to give you some rules of thumb.

Actual multiples achieved will vary of course based on gross margin, churn rates, industry subsector, EBITDA levels, and venture deal competition. Check out the free SEG SaaS Valuation Scorecard for the 20 Factors that go into estimating a firm’s valuation. 

SaaS EBITDA Multiples Remain Very Strong

There’s of course the big question as to whether you should focus on revenue growth or maximizing cash flow and EBITDA.

What EBITDA multiples can you expect for your firm, once you reach profitability? 

The average EBITDA multiple among profitable private software firms that were acquired in 2023 was 13.5X.

It seems that pure SaaS plays get a bit of a further multiple bump over traditional software companies.

Across a sample size of 144 SaaS M&A deals tracked by Aventis Advisors, the median 2023 EBITDA multiple was 22.4x.

Breaking this down by country, US-based SaaS companies saw a median EBITDA multiple of 31.7x in 2023.

It’s a great time in SaaS! Let me know if you need help scaling and preparing for an exit.

Join Our Community of SaaS CEOs & Founders

Thanks for reading. We hope this 2024 SaaS M&A Report has been helpful to you. Please take a moment to learn more about SaasRise, our community for SaaS CEOs and Founders. We welcome all CEOs and Founders with $1M-$100M in ARR to join us. We hold three masterminds each week for our members and provide an in-depth library of SaaS growth, fundraising, and exit resources. You can apply here.

See you next week with more killer SaaS scaling content!

Join Our Community for SaaS CEOs at $1M+ in ARR

If you like this type of content, please apply to join SaasRise our community for SaaS CEOs with $1M-$100M in ARR here. It’s a mastermind community of growth-focused SaaS CEOs. Membership is $197 per month – but might just be the difference between your firm making it across the chasm and getting to a successful nine figure outcome from a PE firm or strategic acquirer.

Thanks for reading! If you liked this article, join the SaasRise community at www.saasrise.com for even more helpful growth content and weekly SaaS CEO masterminds.

About the Author: Ryan Allis is the founder of SaasRise, a community for SaaS CEOs with $1M to $100M in ARR. Ryan previously led iContact as CEO and Co-Founder to $50M ARR and a $169M exit, raised $47M in equity capital and $6M in venture debt, and earned an MBA from Harvard Business School. Today, Ryan advises B2B SaaS CEOs on scaling up and helping them prepare for nine figure exits.

P.S. - Below are six valuable SaaS growth resources we’ve put out. I hope they are useful to you!

Six Helpful Free SaaS Growth Resources from SaasRise

The most in-depth guide for scaling up SaaS companies from $0 to $50M in ARR. Including over 1,200 slides on every aspect of SaaS scaling.

How to determine whether to scale up or down your marketing channels

How to calculate ARPU, LTV, Churn, Lifespan, CPL, CAC, and Max CAC

A fourteen page in-depth PDF on we take each CEO client through a six-phase process designed to increase lead volume, customer acquisition, and revenue growth — and then scale up the sales team, executive team, and investor support as we help you prepare for future fundraising rounds (if needed) or an exit (if desired).

A twenty page in-depth PDF on how to scale a B2B SaaS Company from $1M to $50M ARR. Covering CAC-based customer acquisition, sales team scaling, venture capital markets, and preparing for the exit.

The SaaS Growth Formula was written to help SaaS CEOs who are focused on growing their company's sales - by implementing a simple formula called The Growth Formula. This formula is for companies that have already established product/market fit, already have paying customers, and are now ready to scale up through scientific and CAC-based digital marketing, inbound sales, and outbound sales.

Join Our Saas Growth Mastermind for CEOs and Founders With $1M+ in ARR

If you like the above resources and want more stuff like this, apply to join SaasRise, our mastermind community for SaaS CEOs and Founders with $1M+ in ARR who are focused on scaling up MRR. Every Wednesday we jump on an optional mastermind call to support each other and share what is working with scaling our companies – and we support each other throughout the week in our private community.

About The Author

We’ll see you next time with more great SaaS growth and scaling content!