2025 SaaS M&A Annual Report

The SaaS M&A landscape in 2025 is poised for continued growth driven by innovation, global expansion, and the increasing demand for specialized software solutions. Learn key trends – and challenges – in the SaaS Winter 2025 Report.

SaaS ANNUAL REPORT

2025

INDUSRTY M&A REPORTS

Winter 2025

Index

Macroeconomic Overview

The State of SaaS

SaaS M&A Activity

Select FE International Transactions

SaaS Funding

Looking Ahead

Behind this Report

About FE International

Macroeconomic Overview

A New Year, a New Hope

Real GDP Growth (% YoY)

Global economic outlook is more hopeful for 2025. Cabinet changes across several of the G20 and accommodative monetary policies signal greater potential for growth across markets and industries. The incoming US Presidential Administration heavily influences the global macroeconomic outlook for 2025. The election of Donald Trump in the US is widely expected to improve the economic and regulatory landscape for business owners. In the international arena, President-elect Trump’s trade policies will likely focus on attempting to solidify U.S. dominance in areas such as digital technology and artificial intelligence, broadly benefitting the tech industry as a role. US President-Elect Trump's generally pro-business stance is encouraging to global markets. The new administration's proposed tax policies could lead to substantial changes in the US economy and its partners. Tax cuts, particularly for corporations and high-income earners, might stimulate investment and economic activity. While global financial markets are especially poised for a potentially transformative period, across- the-board tariffs from the US would be unusual — the impact on the global economy could be considerable. However, the potential imposition of tariffs is more likely the starting point of negotiations. Worldwide GDP is forecast to expand 3.0% next year, slightly below prior estimates. The UK and EU are expected to continue to struggle with growth but could be impacted positively by events in the U.S. In China, growth is expected below the official 5% target for the year. For the U.S., there is no consensus, and forecasts are being reconsidered at this writing. Goldman Sachs and UBS forecast 2025 U.S. GDP growth at 2.7-2.9%. The U.S. economy could initially grow slightly faster under Trump's plans to cut corporate taxes, but that impact could quickly fade depending on the effects of a tariff conflict. The Conference Board’s Consumer Confidence Index rose to 111.7 in November 2024, an increase of 2.1 points from October and the highest level since July 2023. This likely reflects increased consumer optimism following the U.S. presidential election and more positive assessments of the current labor market.

4.8%

4.1%

3.3%

3.0%

2.9%

2.7%

1.5%

1.2%

0.9%

0.8%

24E 25E

24E 25E Euro Zone

24E 25E

China

World

Consumer Confidence Index (%)

Index, 1985 = 100

140

Recent uptick in Consumer Confidence

130

120

111.7

110

100

2020

2021

2022

2023

2024

2025

Source: S&P Global Economic Research and The Conference Board.

The Lower Middle Market: A Hidden Gem for M&A Central banks worldwide have continued a gradual reduction in policy rates, which is expected to greatly benefit M&A activity through 2025. The lower-interest-rate environment benefits sellers by making deals more affordable and attractive. Lower borrowing costs translate to reduced debt, quicker deal timelines, and less complex financing structures. Sellers may be able to negotiate for larger upfront payments and fewer deferred payments or earn-outs, as lower borrowing costs reduce the need for such complex arrangements.

The recent interest rate cuts are encouraging for buyers and sellers alike, especially as capital deployment becomes a priority at year end. The [US] Fed didn’t commit to a timeline for the next cut, possibly a signal of caution with policy shifts from the new US administration. Inflation is still “somewhat elevated," so they are walking a tightrope. Powell’s challenge? Balancing a cooling labor market with inflation control. For business owners, this could mean opportunity in the months ahead.

Thomas Smale CEO of FE International

The underlying technology and platform primarily drive lower middle market deals. Lower middle market deals valued under $100 million often require less financing, making them less sensitive to interest rate fluctuations, but lower rates can lead to even more favorable terms and increased deal activity. Importantly, overall economic optimism and a pro-business environment can lead to increased deal activity, especially in the lower middle market. For instance, the US President- elect has expressed plans to deregulate the financial industry and emphasizes technology solutions for financial transactions, which portends well for increased deal activity.

Interest Rate (%)

Rate cuts by Central banks

Quote from Randal The true driver of success in lower middle market technology deals lies in the underlying technology. In sectors like FinTech, where innovation is paramount, the ability to acquire and deploy transformative technologies will ultimately determine deal outcomes. Additionally, a pro-business environment can, on the margin, prompt more transactions to be considered and pursued.

4.38% 3.40% 4.75%

1.00%

Randal Stephenson Head of Investment Banking of FE International & CEO of FE Capital Markets LLC 1

Jan-22

Sep-22

Jun-23

Mar-24

Dec-24

US (Fed)

Euro Area (ECB)

United Kingdom (BoE)

Switzerland (SNB policy rate)

Source: Interest rates as per central bank data of respective regions. Note: ECB = European Central Bank, BoE = Bank of England, SNB = Swiss National Bank. (1) Securities transactions offered and managed through FE Capital Markets LLC, Member FINRA/SIPC (FINRA CRD# 314943).

Venture Capital & Private Equity Investment Outlook

VC Dry Powder ($B) by Vintage

PE Dry Powder ($B) by Vintage

$800 B

$1,800 B

$1,600 B

$700 B

$1,400 B

2024 2023 2022 2021 2020 2019 2018 2017 2016

$600 B

2024 2023 2022 2021 2020 2019 2018 2017 2016

$1,200 B

$500 B

$1,000 B

$400 B

$800 B

$300 B

$600 B

$200 B

$400 B

$100 B

$200 B

$0 B

2014 2015 2016 2017 2018 2019 2020 2021

2022 2023 2024

2014 2015 2016 2017 2018 2019 2020 2021

2022 2023 2024

• Venture capital fundraising in 2024 exceeded 2023 levels. Private equity fundraising, while anticipated to be lower due to higher interest rates, still surpassed $500 billion. • VC and PE firms hold approximately $650 billion and $1.4 trillion of dry powder, respectively. Favorable market conditions should create a favorable environment for robust M&A activity across sectors.

• M&A activity could surpass 10-year averages as US President-elect Donald Trump's pro-growth policies, lower corporate taxes, and expected deregulation are anticipated to create a deal-making surge in 2025, according to Goldman Sachs CEO David Solomon.

Source: Pitchbook Q3 2024 Global Private Market Fundraising Report and NY Post, 10 December 2024.

The State of SaaS

Defining SaaS: Key Characteristics for Sustainable Growth Software-as-a-Service (SaaS) refers to businesses that deploy cloud-hosted software applications delivered on a subscription basis, providing businesses with scalable solutions, accessibility, and predictable recurring revenue. Over the past few years, the definition of SaaS has evolved as businesses across industries adopt subscription models and cloud delivery, leading to the “SaaS -ification ” trend. However, not all businesses claiming to be SaaS meet the true criteria. Investors differentiate true SaaS companies through the following characteristics: • Recurring Revenue: High proportion of revenue derived from subscriptions • Scalability: Ability to serve a growing customer base with minimal incremental cost • Customer Retention: High retention rates (e.g., low churn) and growing customer lifetime value (LTV) • Unit Economics: Strong gross margins (>70%) and efficient customer acquisition costs (CAC) High-quality SaaS businesses share specific hallmarks, including: • Consistent annual recurring revenue (ARR) growth • Net revenue retention (NRR) exceeding 100% • Operational efficiency often measured by the “Rule of 40 ” (ARR growth % + EBITDA margin ≥ 40%) These businesses demonstrate strong customer value, predictable cash flows, and scalability while maintaining a competitive moat and differentiated offerings. Investors scrutinize these metrics to identify SaaS companies that deliver sustainable, high-margin growth versus those leveraging temporary trends.

Lower Middle Market SaaS: A Beacon in a Stormy Economy SaaS companies faced considerable headwinds in 2024, driven by elevated interest rates, persistent inflation, and geopolitical uncertainty. These factors increased the cost of capital, prompting financial sponsors and strategic acquirers to adopt a more cautious approach to spending. While larger tech investments have slowed, lower-middle- market SaaS companies have emerged as a focal point for investors. Smaller valuations, combined with opportunities for roll-up strategies, operational improvements, and service professionalization, make these companies particularly attractive in a capital-constrained environment. Investors are increasingly seeking businesses with clear pathways to value creation and the ability to scale efficiently. Despite macroeconomic challenges, lower middle market SaaS companies are well-positioned to capitalize on growth opportunities, particularly in AI and automation. Enterprises, including small and medium-sized businesses (SMBs), continue to prioritize solutions that deliver tangible ROI through enhanced analytics, predictive insights, and cost- saving automation. SaaS companies that integrate AI-driven capabilities can help businesses optimize workflows, reduce costs, and drive operational efficiencies — key priorities in a cautious market.

For investors, this ability to deliver measurable impact makes lower-middle-market SaaS companies compelling, as they offer growth potential, scalability, and resilience amid broader economic uncertainty.

SaaS is Projected to Double by 2030

Global SaaS Revenues

(In Billions of USD)

CAGR 19%

Global SaaS revenues are set to grow from $328.2 billion in 2024 to $793.1 billion by 2029, a 19% CAGR. While industry leaders like Microsoft, Salesforce, and Adobe dominate the headlines, much of the sector’s momentum is being driven by smaller, lower-middle- market SaaS companies that focus on solving niche problems. These businesses are thriving in specialized verticals like healthcare, financial services, government, and energy, where tailored solutions can deliver clear, immediate value. For these smaller players, growth opportunities are being fueled by rising demand for automation, cost optimization, and vertical-specific tools — particularly among small and medium-sized businesses (SMBs). SMBs represent a fast-growing customer base, seeking SaaS solutions that improve efficiency, streamline workflows, and scale operations affordably with predictable future revenues. Lower-middle-market companies stand out by offering agility, cost-effectiveness, and focused innovation, qualities that larger platforms can’t always match. Investors are increasingly looking to these providers for their ability to deliver strong recurring revenue, operational discipline, and the flexibility to capture emerging opportunities in a rapidly evolving market.

793

664

557

467

391

328

2024E 2025F 2026F 2027F 2028F 2029F

Source: Statista 2024

SaaS M&A Activity

SaaS M&A Activity Lower Middle Market

SaaS M&A by Year – Lower Middle Market (In Billions of USD)

Lower middle market SaaS company M&A demonstrated resilience in 2024, achieving a deal volume of $8.9 billion despite a challenging macroeconomic environment. This represents a 29% year-over-year increase compared to 2023. This robust activity was driven by strategic imperatives, competitive pressures, and the ongoing pursuit of innovation within the sector. Key trends: • Strategic Buyer Dominance: Software and technology companies are strategically utilizing M&A to gain a competitive edge in the rapidly evolving digital landscape. By acquiring complementary technologies and expanding into new markets, these companies are enhancing their capabilities and solidifying their positions within the industry. • Operational Efficiency: Companies are actively seeking to acquire businesses with advanced AI capabilities to enhance their own operational efficiency, improve customer experiences, and gain a competitive edge. • AI-Powered Innovation: Companies are acquiring businesses with strong AI/ML capabilities to accelerate their own innovation efforts, improve their data-driven decision-making, and unlock new avenues for growth. The rebound in SaaS M&A activity is expected to continue upward growth in 2025. Companies are actively looking to enhance their product offerings and gain a competitive edge by pursuing innovation-driven acquisitions with recurring revenues. The shift towards cloud-based, modern technologies empowers buyers to capitalize on growth opportunities and solidify their positions in the evolving digital landscape. Source: Pitchbook as of 31 December 2024. Data consists of transactions where deal value was disclosed. Note: Companies valued below $150 million were considered lower middle market.

495

303

275

Strategic Buyers

234

220

66%

$9.7

$16.6

$10.2

$6.9

$8.9

2020

2021

2022

2023

2024

SaaS M&A Volume by Quarter – Lower Middle Market (In Billions of USD)

Total Deal Size in ($M) # of Deals

135

120 122

106

82 88

66 64 59 67 63

55 55

52 48 51

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 2024

Distribution of Lower Middle Market SaaS M&A Deals Smaller transactions remain the cornerstone of M&A activity in 2024, accounting for more than 70% of the total deal volume.

71% of M&A deals were valued under $50M

79% of M&A deals were valued under $50M

Select FE Advised Deals

13%

Salesforce Payment Solution

SaaS Marketing Solution

16%

Sold to

2024

2023

51%

15%

64%

AI SaaS Content Creation

B2B SaaS - Shopify App

20%

Private Buyer

Sold to

$0 - $25M $25 - $50M $50 - $100M $100M+

• Strategic acquirers continued to be the primary drivers of M&A activity, securing 66% of the total deal volume in 2024 • Private equity firms demonstrated a more cautious investment macro-outlook however; activity is likely to rebound as market conditions improve with a more positive macro-outlook • Smaller transactions below $50 million remained a key contributor to the overall level of M&A activity Source: Pitchbook as of December 2024. Data consists of transactions where deal value was disclosed.

• The business & productivity SaaS sector dominated overall M&A activity in 2024, capturing 42% of all deals in the sector – This surge was primarily driven by the growing need for automation and AI solutions to enhance business efficiency • High demand for financial SaaS drove 12% of the total SaaS M&A volume – Companies are actively seeking acquisitions to enhance compliance and operational resilience in the face of stricter regulations

Select SaaS M&A Deals in 2024 Lower Middle Market

Deal Size ($M)

Date

Type

Date

Type

Target

Buyer

Target

Buyer

15-Aug-24

150

Strategic

30-Oct-24

135

Strategic

17-Jul-24

150

Strategic

14-May-24

135

Strategic

7-Jun-24

150

22-Mar-24

130

Strategic

17-Apr-24

150

1-Apr-24

125

Strategic

16-Apr-24

150

12-Apr-24

124

Strategic

8-Jan-24

150

Strategic

5-Dec-24

119

Private Buyer

8-Nov-24

144

Strategic

31-Dec-24

118

29-Aug-24

143

29-Oct-24

115

16-Apr-24

143

Strategic

20-Mar-24

114

Strategic

24-Oct-24

136

Strategic

13-Aug-24

110

Strategic

Source: FE International and Pitchbook as of 31 December 2024.

Active SaaS Buyers Lower Middle Market

Financial Buyers

Strategic Buyers

Source: Pitchbook as of December 2024.

Select FE International SaaS Transactions

Finding the Right Buyer in a Niche Sector Asperato, a Salesforce payment orchestration solution, finds new home with Salesforce focused private equity firm

Company Overview:

Sold to

Asperato is an embedded Salesforce payment orchestration solution with a gross merchandise value (GMV) run rate of over $1.1 billion. The company helps businesses securely collect and process payments around the world with its fully tokenized PCI-DSS Level 1 compliant solutions, which have been audited and certified to meet the highest standards of security. Asperato partnered with FE International due to the firm's unmatched presence in the Salesforce ecosystem, with over a dozen completed transactions such as CloudOrca and Focus on Force.

Salesforce Payment Solution

Key Value Drivers:

Buyer Interest:

Process Results:

• Revenue has grown 33% year over year between 2021-2022 • 87% gross margins • Net revenue retention of 111% (2022)

• Opportunity presented to 1200+ buyers with the majority of outreach focused on strategic acquirers within FinTech and beyond.

• FE negotiated favorable management incentive structures in which founders receive future payouts for consistent results — in addition to funds received for the sale of the business • 7 Offers that each exceeded sellers’ expectations

Bootstrapped SaaS Finds Successful Exit DropFunnels, an all-in-one marketing solution, completes exit in 60 days

Company Overview:

Sold to

DropFunnels is an all-in-one marketing solution that gets businesses online with a website in minutes. The platform includes pre- built drag-and-drop modules that make creating funnels quick and easy with a variety of options such as creating pricing charts, custom checkouts, digital course hosting, and more. The founder came to FE International because he wanted a fast exit – he was ready to found his next business, and needed a buyer who could continue to scale DropFunnels to success. To his satisfaction, the transaction closed in under 60 days.

SaaS Marketing Solution

Key Value Drivers:

Buyer Interest:

Process Results:

• Adjusted EBITDA margin of c.44% • 1,000+ users • Impressive 4.5 out of 5.0 stars on Capterra

• Opportunity presented to 800+ buyers with the majority of outreach focused on strategic acquirers

• Quick and efficient process with signed offer to close in under 60 days

Competitive, Curated Process for GenAI Smodin receives 10 competitive offers and a successful exit

Company Overview:

Sold to

Smodin is an AI-powered writing tool that pioneers innovative solutions for students, teachers, writers, and businesses across the globe. With over 10 million users and a presence in over 180 countries, the company integrates cutting-edge AI tools to enhance productivity and creativity in content creation. Smodin came to FE International because it created a unique language-learning AI model (LLM) and wanted as competitive deal process as possible amid increased volumes of AI transactions due to the rise in popularity of other models, like Gemini. They received 10 competitive offers throughout the process.

Private Equity Firm Private Buyer

Gen AI SaaS (Content Creation)

Key Value Drivers:

Buyer Interest:

Process Results:

• Garnered 71 million website sessions in the last 12 months, demonstrating extensive user engagement and robust platform appeal • Realized compound monthly growth rates of 4% for ARPU and 3% for lifetime value • Impressive 4.6 out of 5.0 stars on Trustpilot

• 1,100+ Parties Contacted • Multiple offers received

• Smodin received 10 competitive offers for the business, meeting the owner’s expectations with a buyer able to execute seamlessly and at the right price

B2B SaaS Selects the Perfect Buyer TrackiPal, a Shopify App, successfully closes exit with a small software acquirer

Company Overview:

Sold to

TrackiPal is a cutting-edge Shopify app revolutionizing order tracking and customer communication. With seamless integration, it provides merchants with real-time tracking updates and customizable notifications, enhancing customer satisfaction and retention. TrackiPal empowers businesses to streamline their operations and deliver exceptional post-purchase experiences. Due to the volume of interest FE International raised for TrackiPal, the founder was able to pick their most preferred offer - a quick exit and 110% of the initial valuation. It was sold to a high-net-worth individual, buyer.

Private Buyer

B2B SaaS - Shopify App PayPal Order Syncing

Key Value Drivers:

Buyer Interest:

Process Results:

• One of the only Shopify approved applications that allows for PayPal integrations • Top rating on Shopify Marketplace with a rating of 4.7/5-stars • High margins given lean operations

• 2500+ Parties Contacted • Several offers received from high-net-worth individuals to small software acquirers

• FE International negotiated a successful exit at more than 110% of initial valuation • Founders received a range of exit options, ultimately maximizing their desired outcome and demonstrating FE’s commitment to surpassing their expectations.

SaaS Funding

SaaS Funding Lower Middle Market

SaaS Funding by Year – Lower Middle Market (In billions of USD)

1,811

1,586

SaaS company funding remained subdued in 2024, reaching $9.3 billion across 721 deals. While the overall funding landscape reflected a cautious investor approach due to the prevailing macroeconomic conditions, SaaS continued to attract significant investment. Notably, investors demonstrated a preference for smaller deals, likely seeking to mitigate risk in the current environment. This shift towards smaller deals suggests a focus on proven business models and a preference for less volatile

1,245

996

721

$24.9

$21.0

$16.1

$12.9

investments. Key trends:

$9.3

2020

2021

2022

2023

2024

• Focus on AI Integration: Investors are targeting SaaS businesses leveraging AI for enhanced decision-making, personalized solutions, robust security, and advanced data analytics. • Adapting Growth Strategies: Investors value SaaS companies that are adapting their growth strategies by downsizing non-core teams, prioritizing R&D, and exploring strategic partnerships to enhance efficiency, expand client bases, and drive sustainable growth in the current market. • Security as a Priority: Investors are prioritizing SaaS companies that prioritize security, particularly those with robust security measures to mitigate risks from data breaches, misconfigurations, and the growing threat of interconnected applications. These trends indicate a strong future for SaaS companies, with investors seeking out innovative and resilient businesses that can navigate the evolving market landscape.

SaaS Funding Volume by Quarter – Lower Middle Market

(In billions of USD)

Total Deal Size in ($M) # of Deals

497

487 488

447

442

352

341 364

301 302 299

287 264

256 239

226

188 207 179

146

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2020 2021 2022 2023 2024

Source: Pitchbook as of December 2024. Data consists of transactions where deal value was disclosed. Note: Companies valued below $150 million were considered lower middle market.

Select SaaS Funding Deals in 2024 Lower Middle Market

Deal Size ($M)

Company

Date

Funding Type

Company

Date

Funding Type

22-Jul-24

62.0

Seed Round

11-Jan-24

37.0

Later Stage VC

30-Aug-24

49.7

Seed Round

28-Jun-24

36.0

Early-Stage VC

22-Aug-24

47.0

Later Stage VC

29-May-24

36.0

Later Stage VC

10-Oct-24

43.9

Later Stage VC

3-Apr-24

35.0

Later Stage VC

24-Jun-24

43.0

Later Stage VC

Ontheline

30-Oct-24

35.0

Later Stage VC

20-Jul-24

42.0

Later Stage VC

6-Sep-24

34.8

Later Stage VC

1-Apr-24

41.0

Later Stage VC

19-Apr-24

34.2

Early-Stage VC

22-Oct-24

40.5

Later Stage VC

29-Apr-24

33.0

Early-Stage VC

11-Mar-24

39.0

Later Stage VC

9-Feb-24

32.9

Early-Stage VC

25-Jun-24

38.4

Early-Stage VC

6-Mar-24

32.9

Early-Stage VC

16-Apr-24

37.8

Early-Stage VC

13-Jun-24

32.5

Later Stage VC

Source: FE International and Pitchbook as of 31 December 2024. Select transactions from deals with valuations less than $150M.

Active SaaS Investors & Accelerators Early Stage

# of SaaS Investments in 2024

Investor

Select Investments

Source: Pitchbook as of December 2024. Note: Data includes funding rounds exceeding $5 million for companies with a valuation under $150 million.

Looking Ahead

Looking Ahead The SaaS M&A landscape in 2025 is poised for continued growth, driven by innovation, global expansion, and the increasing demand for specialized software solutions. While challenges remain, a key trend is the rise of lower-middle market SaaS as a prime target for acquisitions.

Why Lower-Middle Market?

• Attractive Valuations: Smaller valuations combined with potential for growth through roll-up strategies and operational improvements make these companies compelling investments. • Scalability and Resilience: Lower-middle market SaaS companies offer growth potential and the ability to adapt in a volatile market.

• Focus on Value Creation: Investors seek businesses with clear pathways to profitability and efficient scaling.

Key Trends:

• Vertical SaaS Consolidation: Companies with deep industry expertise are highly desirable for larger players seeking to expand their portfolios. • AI and Automation Integration: Acquirers are prioritizing companies with AI-powered analytics and automation capabilities. • Subscription Management Platforms: Platforms optimizing subscription management and retention are gaining traction for boosting customer lifetime value. In conclusion, the SaaS M&A landscape in 2025 presents exciting opportunities, particularly within the lower-middle market. Driven by attractive valuations, scalability, and a focus on value creation, this sector is poised for continued expansion, with acquirers well-positioned to capitalize on its potential.

Behind this Report