Private Equity Firms Buying Software and SaaS Companies

Private equity has become one of the largest buyers of software companies, and not only of large ones. Many firms below look for founder-owned software businesses that serve a specific industry, such as construction, healthcare, field services or financial firms, and that customers rely on to run their daily work. These vertical software companies often have loyal customers, steady subscription revenue and room to grow with more investment in sales and marketing.

Software buyers measure a business differently from buyers of services companies. They will ask about annual recurring revenue, how much of it renews, how much existing customers expand each year, gross margin, and what it costs to win a new customer. Many smaller software companies are valued on revenue rather than EBITDA, especially when growth is strong, but buyers still want to see a path to healthy profits.

Expect diligence on the product itself: the age of the code, how much depends on one or two developers, security practices, hosting costs and any open source licensing issues. Buyers will also read customer contracts for price increase terms, look at customer concentration and count how many customers are on month-to-month terms. Companies that still sell one-time licenses or rely heavily on custom work should be ready to explain how they plan to move toward subscriptions.

Some firms on this page take majority control; others make minority growth investments that leave the founder in charge. For an owner, the key questions are how much control you want to keep, whether the buyer plans to combine your company with others it owns, how your developers and customer success team will be kept, and what growth the buyer expects over the next three to five years.

Greymont is paid by buyers, never by owners. Whether you want a full sale or a partner for growth, Greymont can help you identify which of these firms invest in software like yours.