How to Sell a SaaS Business – Complete Guide to Selling Your Company

Software as a service (saas) has been at the forefront of American innovation for centuries. As technology and global competition write the next chapter of industrialization and digital machines replace industrial ones, the demand for tech enables services such as software and saas companies has never been higher from investors.

If you are looking to sell a saas company and want to maximize its value, Raincatcher is here to help. We are seen as an industry leader in M&A and were even named the #1 business broker by Inc. magazine. Like every worthwhile endeavor, selling saas or any other type of company requires time and meaningful effort to attract the right kind of buyers. While there’s no one-size-fits-all approach to the selling process for an online business like saas, we tailor our process to our client’s business, the aim of this article is to highlight the process of selling from document gathering through the close.

Process of Selling a SaaS Company (at a glance)

If you have decided to sell all (or part) of your SaaS company, here is a glimpse at what the process will entail over the coming year:

  • Build a strong deal team. Align yourself with a business brokerage firm (for deals under $10m) or M&A firm (for deals over $10m) that has proven success representing SaaS companies and a deep rolodex of private equity firms, family offices and other tech-focused investors. Find a proven M&A attorney (we can introduce you to a number of groups that we’ve had success with), and a tax attorney.

  • Compile your materials. Your M&A advisor (Raincatcher) will request a litany of documents from you. This includes financial statements, organization charts, code base, client contracts, employment agreements, etc.

  • Market the deal. We create a comprehensive document and financial forecast for your company and then bring it to market. Much of this work falls on our shoulders as we have an expansive database of investors for SaaS companies.

  • Receive IOIs. Depending on the size of your business, your M&A advisor may suggest that you market the deal and push for LOIs. Alternatively, if your business is large enough, we look to secure IOIs ahead of time so that we can shortlist the most capable buyers and share more information with them ahead of receiving an LOI.

  • Management Meetings. Your broker (or M&A Advisor) will join you in hosting investors for a week to share additional information about your SaaS.

  • Receive LOIs. ‘best and final’ bids will be received after hosting the most capable buyers for meetings.

  • Sign an Exclusive LOI. After some negotiation, we help you select the most capable buyer based on their price, terms, likelihood of closing, and plans for the company. You’ll then sign an exclusive LOI with that company before moving into due diligence.

  • Due Diligence. Another 60-90 day due diligence window commences with the buyer and their advisors diligence every inch of your company. Typically they’ll bring in a tech firm for a code audit as well as financial analysts and legal counsel.

  • Close. Closing time. The deal is done and you’ll typically get 80% – 90% of the payment for your business at this time.

  • Transition. After closing, the buyer will typically require the sellers to stay behind and assist in transitioning the business to them for an agreed-upon period of time.

What Determines the Valuation of a SaaS Business?

Lower middle market SaaS companies (sub $15m EBITDA) trade across a fairly large range depending on how desirable they are. A saas company that trades for a high multiple (~10x) is one that has many of these traits:

  1. Differentiated SaaS offering

  2. Sticky client base (ussually businesses, but occasionally consumers)

  3. High growth

  4. Scale, potentially $10m revenue plus (the larger the business, generally the higher multiple)

  5. A large total addressable market or the ability to expand into adjacent ones

  6. High margin (assuming your business is profitable)

  7. Strong leadership team

  8. Minimal churn (high CLTV)

  9. Mission critical service

  10. Clean financials

  11. Well represented by a professional M&A firm such as Raincatcher

The fewer of these criteria your saas company meets, the lower the multiple will slide. Although rare in the industry, it’s true that some saas companies don’t sell at all. However, these are typically very small companies (less than $500k arr) and have a product that is not very differentiated from other providors and therefore a high level of churn.

As discussed above and illustrated in this chart, the valuation of a saas company can range greatly. We’ll dig into some of the more critical factors determining saas company valuations below.

As discussed above and illustrated in this chart, the business valuation of a SaaS company can range greatly. We’ll dig into some of the more critical factors determining SaaS business valuations below.

More SaaS Business Resources

One of the most common questions we get from business owners is about valuation. We put together a SaaS valuation multiples guide that we think you’ll find helpful.

Should SaaS Sell for an Annual Recurring Revenue Multiple (ARR) or EBITDA Multiple?

We hear this question from a number of owners of saas businesses “Should my business sell for a multiple of monthly recurring revenue, annual recurring revenue or EBITDA?” Truth is, there isn’t one answer. Companies that are in the middle innings and are still in a high-growth mode tend to invest a large portion of their discretionary earnings back into the business to fuel growth either through hiring sales reps or through paid marketing channels. In this scenario, your SaaS should sell on a revenue multiple.

If you’re not aggressively investing in marketing and growing at 20%+ revenue growth each year, SaaS buyers will value your business on a multiple of EBITDA.

Financial Performance

The historical and projected financial performance of your saas business is a significant factor in its valuation. Interested buyers will need to be able to look through updated cltv figures, tax returns and financial statements and records for factors such as revenue, profitability, cash flow, and growth trends to evaluate the business’s financial health and potential returns on investment. Additionally, they will look for SaaS businesses with very low customer churn. If you’re able to keep your customers for a long period of time and prove that you are integral to their business (or life) and not easily replaced, this will go a long way in earning you a premium valuation.

Generally speaking, the larger a business is, the higher valuation it will go for. A business that generates $500k in annual profit may trade at half the valuation multiple that a like business generating $3m in cash flow trades at.

Additionally, many profitable saas companies are able to generate profit margins north of 40% given a low fulfillment cost (cost of goods sold, or COGs) and customer acquisition cost (CAC) while having a high customer lifetime value (CLTV). These companies are very attractive to buyers.

Industry Segment and Market Conditions

The industry and market conditions in which the saas operates play a crucial role in its valuation. Factors such as market demand, competitive landscape, barriers to entry, and industry growth potential impact the perceived value of the business.

Generally speaking, the more niche an industry is the smaller its total addressable market is. However, it is likely that they have few competitors in that niche and can therefore have greater customer lifetime value (CLTV). Investors will have different views on niche markets with most buyers liking them and others disliking them for their limited growth prospects.

Growth Prospects

Buyers assess the growth potential of the saas business to determine its value. Factors such as expanding into other markets, market penetration, differentiation, innovation capabilities and the quality of the developers used, and customer base contribute to the assessment of future growth prospects and impact on business valuation.

Assets and Intellectual Property

The tangible and intangible assets of the saas business can also impact the company’s valuation. This includes the quality of the code base, servers, inventory, intellectual property (such as patents, trademarks, or proprietary technology), and customer contracts.

More often than not, SaaS business balance sheets don’t have many assets on them, the assets of the company are more intangible such as the reputation with existing customers, penetration into the market, number of enterprise clients, and recurring customers. These will ultimately make a difference the the business value.

Customer Base

The strength and stability of enterprise customer relationships and the diversity of the customer base are considered in the valuation process. A broad and loyal customer base that is on recurring billing cycles will positively impact the perceived value of the business.

Thinking About Selling?

If you are entertaining selling your company, feel free to request a consultation with one of our saas business brokers or M&A specialists to learn about our unique process and why we believe it is the best in the industry.

What is the Process of Selling a SaaS Business?

While it may not be a fit for all clients, most of the entrepreneurs we work with who run saas companies will see the most competitive price and terms for their business coming from a well-run auction process.

Auction processes typically take 7-9 months to complete. On certain occasions, we may recommend that our client hire an accounting firm to complete a quality of earnings analysis before we start the auction process. In our experience, this cost and time is justified and can manifest itself in 5% – 25% hire exit values. This is especially true with lucrative investor markets such as the market for SaaS.

We’ll go into each of the steps of an auction process at a high level below:

How we Maximize Exit Proceeds for our SaaS Clients with our Auction Process

Sell-side due diligence

Due diligence is traditionally done by business buyers and not business brokers. However, our comprehensive sell-side process includes a diligence process before we bring a business to market. 

Our comprehensive diligence and sale process is designed to drive the highest value for the business owner as buyers know that there won’t be any skeletons in the closet once they submit an offer and start spending money on legal and financial diligence.


Specially designed brokerage or M&A auction process

Depending on the size of your business and industry your company operates in, we may recommend a traditional brokerage process with a listing price. Or, a competitive auction process with buyers submitting the price and terms for negotiation. 

Our buyer list is comprehensive and will be tailored to include (or exclude) and participants in your industry who may make great strategic buyers or who you want to avoid knowing the business is on the market for sale.

Short-listing finalists

It isn’t uncommon for strong, sizable companies to get 5+ indications of interest (soft offers). We’ll then validate those buyer groups, attend dinners where they meet out clients, prepare further data on the business and negotiate the deal terms that the prospective buyers will propose in their final offer.


Negotiate LOI terms and facilitate diligence

Once LOI’s have been received from potential buyers we work with our clients to select the potential buyer with the most attractive offer before executing the exclusive LOI.

It’s common for diligence to take 60-90 days before closing. This requires a significant time commitment from all parties. Additionally, final deal points are negotiated and contested during this period.

Talk to the experts

Care to learn more about Raincatcher’s brokerage and M&A processes and what we can do for your business? Get in touch with us for a complimentary consultation.

What Affects the Market's Appetite for the SaaS Industry?

Tech companies with an evergreen demand for their product/service and recurring, new customers, or re-occurring clientele are nearly always in high demand for acquisition from investors such as private equity firms, strategic buyers, and search funds.

Generally speaking, saas companies are purchased in leveraged buyouts from investment groups. This means that the buyer utilizes debt to finance 40%+ of the purchase price. Because of this debt utilization, private equity groups like the SaaS space most when interest rates are low.

What Role Does Technology Play in Investors Analysis of the SaaS Industry

Strategic buyers and private equity groups alike are interested in buying companies at a discount to the cash flow they can take out of them over the coming decade. There are a few ways they go about this:

  1. Invest in companies that they can grow significantly

  2. Acquire companies that are highly differentiated and therefore have a very stable, predictable client base and whos cash flow presents a high degree of certainty.

In both of these cases, having a SaaS that has proven differentiation makes your business far more desirable to investors. Either this technology will be leveraged to grow the business. Or, it is seen as a differentiating factor to separate from the competition and create a higher margin and more durable revenue stream.

Request a Consultation

At Raincatcher we represent sellers of exceptional lower middle-market companies. Generally speaking, these companies generate anywhere from $2m – $100m in annual revenue. We were even named the #1 business broker by Inc. magazine.

Our team is comprised of former small business owners, public accountants and investment bankers. Included in this group is two of our partners who each spent over a decade working at middle-market investment banks where they represented SaaS companies. This is one of the reasons we are seen as an expert in the SaaS space.

request a consultation today to review your market value, discuss what type of exit process would make the most sense and meet our team of advisors who have real-world experience selling SaaS companies.