The evaluation of SaaS companies in M&A transactions

Software as a Service (SaaS) companies have become an important part of the technology industry in recent years. SaaS companies offer their customers a variety of applications and services that can be used over the Internet. Because of their subscription-based business models, SaaS companies are also popular for M&A transactions. In this article, we'll take a closer look at evaluating SaaS companies in M&A transactions.

When evaluating SaaS companies, there are a few specific aspects that need to be considered. One important factor is the monthly recurring turnover rate (MRR). MRR provides information on how much money the company generates each month through recurring subscriptions. Since revenue in a SaaS company is usually recurring on a monthly basis, MRR is often considered the most important indicator for evaluating a company's growth potential.

Another important factor when evaluating SaaS companies is customer loyalty. Customer loyalty shows how long a customer stays with a company on average before they cancel. The higher customer loyalty, the more valuable a company is. A high level of customer loyalty can also indicate that the company has a strong brand and a strong product portfolio that is tailored to the needs of its customers.

Another key figure when evaluating SaaS companies is the customer acquisition cost (CAC). The CAC states how much money a company must spend to acquire a new customer. A high CAC can be an indicator that the company is struggling to find and retain customers.

In addition, research and development (R&D) spending must also be considered when evaluating SaaS companies. Because SaaS companies operate in a highly competitive environment, it is important that they continuously invest in R&D to improve their products and services and remain competitive in the market.

In summary, evaluating SaaS companies in M&A transactions is a complex process that takes into account a variety of factors. Monthly recurring turnover, customer loyalty, customer acquisition costs and expenditure on research and development are particularly important.

As an M&A law firm, we at Alphabet Partners attach particular importance to a thorough evaluation of SaaS companies. We work closely with our clients to understand their business models and strategies and to conduct an assessment that is in line with current market conditions and trends. We also believe that personal contacts with our clients are very important and are therefore committed to close cooperation and transparent exchange.