When will high valuation multiples come back to B2B SaaS acquisitions so I can sell my company for the highest premium?
Two CEOs with B2B SaaS businesses almost to $5M ARR asked me this question last week.
They remember the boom time with crazy 20x+ valuations for early-stage SaaS acquisitions from late 2020 to early 2022. There were big IPOs, zero interest rates, excited buyers, and boosted tech spending during the pandemic only three years ago.
Then reality came back quickly:
- There have been fewer than ten software IPOs in 2023 and 2024.
- Public B2B SaaS companies are valued at 6x revenues, on average. That’s a rational reversion to the mean.
- Interest rates are much higher, and debt-based acquisitions have slowed.
- Private-equity-backed acquirers and investors make up 60% of all software acquisitions in 2023 and 2024. PE buyers won’t pay the high premiums that eager strategic buyers used to pay.
- SaaS buyers are more frugal and ROI-focused.
- VCs are less focused on “legacy” B2B SaaS companies and are looking for big wins with disruptive AI-powered blockbusters.
I expect all of those to stay about the same in the next few years for B2B SaaS companies.
So, if you are thinking about selling your SaaS company someday soon, you should expect valuations between 3x and 10x revenues, depending on your growth rate, profits, predictability, strategic value, and buyer urgency.
Don’t count on 20X revenue multiples when you sell your business, despite what happened in the 2021 boom time.
There’s still some good news with all of this:
- The number of software acquisitions continues to increase every year. Many of these are distressed companies that ran out of VC funding, but there is still a very active acquisition market, especially with enterprise values under $50M.
- Global software technology spending continues to increase by 15% every year. Software is still eating the world.
- SaaS businesses between $2M and $10M ARR still attract a lot of interest from buyers who will pay higher multiples of revenue, not lower EBIDTA profit multiples of most other businesses. Three cheers for recurring revenue SaaS!
So, keep building your software company to grow revenues steadily and efficiently. Maybe even take some money off the table from profits.
Keep investing in your product and growth, using AI to do more with less across your business.
Remember, at a 5x multiple, your company is still worth twice as much when you double your revenues. So a “low” 15% growth rate doubles your revenue in 5 years.
Keep going. Be practical my friends.
#practicalfounders
