M&A in the Software Industry Has Slowed Down in 2023, But it Hasn’t Stopped

M&A in the software space has slowed down in the last year, but it hasn’t stopped.

I’m still hearing about acquisition offers and transactions for savvy early-stage SaaS companies for multiples of 4X-7X annual recurring revenue.

But these aren’t “average” software companies in the $3M to $10M ARR range.

  1. They are growing revenues by over 50% a year. The smaller ones are doubling revenues every year or more.

    This means they had a great product for someone, they have figured out how to acquire happy customers efficiently, and they have tamed churn into a reasonable place.

  2. They have some profits and a cash cushion, so they don’t have to take a bad offer.

    They can wait for better offers or just say No and keep growing.

  3. They have created a worthy product and a reputation for solving a very important problem for a specific group of customers.

    This attracts strategic buyers that serve the same customers and can fit them into their larger portfolio and create a much bigger business.

  4. They didn’t raise big outside funding raised at crazy-high valuations. The founders have the option to sell the company at any stage if the offer is right.

These founder-scale exits won’t get blocked by VCs who need much larger venture-scale exits.

There are far fewer exits and acquisitions in SaaS this year than a couple of years ago, but quality early-stage software companies are still valuable to acquirers and get reasonable valuations.

Mediocre software startups and growth-stage companies aren’t getting strategic valuations, just bottom-fishing offers.

And most of those over-funded startups that raised $10M on $100M+ valuation won’t raise more funding. The founders will get screwed when they try to sell it.

It’s harder than it looks to create a valuable software company that can attract a good-fit buyer with a premium valuation.

It has always been rare to sell a company and come out ahead. It doesn’t happen as much as you think, but it’s not impossible.

Keep going and build something great for someone.

And stay off the big funding drugs to keep your exit options open.

That’s what I’m seeing. What are you seeing these days in SaaS M&A?


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