KBS - Software-as-a-Service - Market Insight

MARKET INSIGHT – SOFTWARE-AS-A-SERVICE

MARKET INSIGHT

Since 2020, the software and software-as-a-service (SaaS) sector has evolved from a period of rapid expansion to a more stable, performance-driven market.

The pandemic years saw a surge in demand as businesses moved online, but subsequently investors have become more selective and are focusing on companies with strong recurring revenues, loyal customer bases and clear profitability. High-quality businesses with steady growth and healthy margins continue to attract strong buyer interest. A major shift has been the rise of artificial intelligence (AI), which is transforming how software products are developed, delivered and priced. AI is now being built into everything from workflow automation to customer service tools, creating opportunities for innovation but also driving consolidation as smaller firms struggle to keep pace.

Products & Services Segmentation CRM System Providers in the UK Industry revenue in 2025 broken down by key products and service lines.

Software as a Service (£2.1bn) 71.3%

Software as a Product (£696.0m) 23.5%

Other services and fees (£154.0m) 5.2%

Source: IBISWorld

Looking ahead, the market is expected to remain highly active, with strong interest in SaaS platforms that serve specific industries, deliver measurable efficiencies and demonstrate reliable subscription-based income.

Larger technology groups and private equity investors are likely to continue acquiring to gain access to new technology, recurring revenue streams and established customer relationships — particularly where AI integration enhances long-term scalability and value creation.

FACTORS DRIVING GROWTH

1. DIGITAL TRANSFORMATION ACROSS INDUSTRIES Businesses of all sizes are modernising operations, moving away from legacy systems towards cloud-based platforms which improve efficiency, collaboration and scalability. This ongoing shift fuels sustained demand for SaaS solutions. 2. ADOPTION OF AI AND AUTOMATION The integration of AI and machine learning into software platforms is transforming how organisations operate. From data analytics and cybersecurity to customer service and marketing automation, AI-driven tools are becoming business essentials rather than optional add-ons. 3. SHIFT TO SUBSCRIPTION AND CLOUD MODELS Predictable, recurring revenue models remain highly attractive to both investors and end users. Subscription pricing, combined with lower upfront costs, makes SaaS accessible to a wide range of customers, from SMEs to large enterprises. 4. REMOTE AND HYBRID WORKING The lasting effects of the pandemic have normalised hybrid work, driving demand for cloud-based productivity, collaboration and security software which enables flexible and secure working environments. 5. STRONG INVESTMENT AND M&A ACTIVITY Private equity, venture capital and corporate acquirers remain highly active in the sector, viewing SaaS as a resilient, scalable and high-margin model. This investment supports innovation, international expansion and sector consolidation. 6. CYBERSECURITY AND COMPLIANCE NEEDS Growing regulatory requirements and cyber threats are prompting organisations to prioritise secure, compliant and continuously updated cloud solutions — a key strength of SaaS models. 7. VERTICAL SPECIALISATION Increasingly, software providers are targeting specific industries (such as healthcare, construction or professional services) with tailored solutions. These ‘vertical SaaS’ platforms often deliver faster adoption rates and stronger customer retention, driving market growth.

M&A ACTIVITY CONTINUES TO RISE

M&A in the UK software and SaaS sector has remained strong and continues to rise, driven by a mix of strategic consolidation and renewed investor confidence. In 2024, the total value of transactions increased by around two thirds year on year. Within the software and SaaS space, deal volumes have now surpassed pre-pandemic levels, reflecting sustained appetite from both strategic buyers and private equity. Many acquirers are choosing to buy rather than build new platforms, particularly where specialist software, data analytics or AI capabilities can strengthen their offering and accelerate growth.

Private equity investors remain especially active, pursuing buy-and-build strategies to scale recurring-revenue SaaS businesses and consolidate fragmented markets.

International interest in UK software firms has also grown, with inbound acquirers — particularly from the US — recognising the UK’s strength in innovation, talent and mature SaaS infrastructure.

Overall, M&A momentum in the sector is underpinned by businesses seeking scale, stable recurring revenues, and access to new technology. For company owners, this ongoing demand highlights a strong window of opportunity to explore a sale while market appetite and valuations remain high.

In 2024, the total value of transactions increased by around two-thirds year on year.

FACTORS DRIVING APPETITE FOR M&A

1. RECURRING AND PREDICTABLE REVENUE SaaS businesses offer stable, subscription-based income streams that provide visibility and consistency — a major attraction for both trade and private equity buyers seeking to de-risk their portfolios. 2. SCALABILITY AND HIGH MARGINS Once developed, software products can be replicated and distributed globally with minimal additional cost. This operating leverage allows acquirers to achieve strong profit margins and attractive returns on investment. 3. DIGITAL TRANSFORMATION DEMAND Organisations across every sector are modernising operations, driving continuous demand for cloud-based, data-driven and AI-enabled software solutions. Acquirers see this as a long-term structural growth trend that underpins sector resilience. 4. CROSS-SELLING AND MARKET EXPANSION Strategic buyers often pursue acquisitions to broaden their product offering, cross-sell to existing customers, or enter new vertical markets. This is especially common in niche or ‘vertical’ SaaS platforms tailored to specific industries. 5. PRIVATE EQUITY BUY-AND-BUILD STRATEGIES PE firms are actively consolidating the fragmented SaaS landscape by acquiring platform businesses and bolting on complementary technologies to accelerate scale, increase valuation multiples and improve exit potential. 6. AI AND AUTOMATION INTEGRATION Many acquirers are motivated by access to advanced technologies — particularly AI, automation and analytics — which enhance product capability, operational efficiency and customer retention. 7. INTERNATIONAL EXPANSION Overseas buyers view UK software companies as gateways to the European market, often attracted by strong technical talent, a well-developed SaaS ecosystem, and competitive valuations compared to US peers.

SECTOR DEFINITION

This sector encompasses businesses that deliver software applications via the cloud on a subscription or usage based model. Instead of installing software locally, customers access services through a browser or API, enabling continuous updates, scalability and lower upfront costs. The sector includes products such as CRM, ERP, HR & payroll, collaboration tools, vertical SaaS (industry-specific applications), cybersecurity SaaS, analytics platforms, developer tools, fintech SaaS, marketing automation, AI enabled services and enterprise management systems. SaaS solutions serve virtually every industry, including technology, financial services, healthcare, retail, manufacturing, real estate, logistics and government. They are critical to enterprise digital transformation, offering automation, compliance support, scalability and data-driven decision-making.

Revenue Software Development in the UK Total value (£) and annual change from 2013 - 2031. Includes 5-year outlook

1.5

20%

Forecasted

1.2

16%

2026 Annual Revenue (£bn) 1.1 2026 Change 2.5%

0.9

12%

0.6

8%

0.3

4%

0

0%

2014

2016

2018

2020

2022

2024

2026

2028

2030

Change (%)

Annual Revenue (£bn)

Source: IBISWorld

CURRENT LANDSCAPE

The current landscape for the UK software and SaaS sector remains highly active and increasingly competitive. Deal volumes have risen steadily, with software businesses now representing nearly half of all UK transactions and attracting the majority of capital invested. In particular, SaaS and AI-enabled platforms have seen strong momentum, with both deal numbers and investment values increasing sharply through 2024 and into 2025. Private equity continues to be a major driver of activity, accounting for around 60% of SaaS transactions, as investors look for scalable, recurring-revenue models and opportunities to build value through strategic bolt-ons. Buyers are becoming more selective, focusing on high-quality assets with strong recurring income, high customer retention and a clear path to profitable growth. Strategic acquirers are particularly drawn to niche, vertical SaaS businesses and AI-enabled software platforms that can add differentiation and long-term value to their portfolios.

International interest in UK software firms remains strong, especially from US buyers who view the UK as a mature and innovative technology hub.

While some macroeconomic caution persists, the sector continues to outperform the wider M&A market thanks to its resilience, recurring revenue structures and critical role in digital transformation. Overall, conditions remain highly favourable for business owners considering a sale, with sustained buyer appetite, stable valuations and strong demand for technology-led, scalable platforms.

Private equity continues to be a major driver of activity, accounting for around 60% of SaaS transactions

KEY DRIVERS AND MOTIVATIONS FOR ACQUIRERS 1. RECURRING AND PREDICTABLE REVENUE SaaS businesses offer stable, subscription-based income streams that provide visibility and consistency — a major attraction for both trade and private equity buyers seeking to de-risk their portfolios. 2. SCALABILITY AND HIGH MARGINS Once developed, software products can be replicated and distributed globally with minimal additional cost. This operating leverage allows acquirers to achieve strong profit margins and attractive returns on investment. 3. DIGITAL TRANSFORMATION DEMAND Organisations across every sector are modernising operations, driving continuous demand for cloud-based, data-driven and AI-enabled software solutions. Acquirers see this as a long-term structural growth trend that underpins sector resilience. 4. CROSS-SELLING AND MARKET EXPANSION Strategic buyers often pursue acquisitions to broaden their product offering, cross-sell to existing customers, or enter new vertical markets. This is especially common in niche or ‘vertical’ SaaS platforms tailored to specific industries. 5. PRIVATE EQUITY BUY-AND-BUILD STRATEGIES PE firms are actively consolidating the fragmented SaaS landscape by acquiring platform businesses and bolting on complementary technologies to accelerate scale, increase valuation multiples and improve exit potential. 6. AI AND AUTOMATION INTEGRATION Many acquirers are motivated by access to advanced technologies — particularly AI, automation and analytics — which enhance product capability, operational efficiency and customer retention. 7. INTERNATIONAL EXPANSION Overseas buyers view UK software companies as gateways to the European market, often attracted by strong technical talent, a well-developed SaaS ecosystem, and competitive valuations compared to US peers.

FACTORS DRIVING BUYER APPETITE

In the UK software/SaaS space, we have seen deal values that have been calculated on adjusted EBITDA/earnings multiples ranging from 5–6x to double-digit figures, depending on various factors such as the quality and predictability of recurring revenue, customer retention rates and overall growth trajectory. Buyers are particularly attracted to businesses with high net revenue retention, strong ARR (Annual Recurring Revenue) momentum, and scalable operations, as these characteristics reduce risk and offer visibility on future cash flows.

The presence of differentiated products or proprietary technology - especially AI-enabled or vertical-specific solutions - also drives higher valuations, as these create competitive advantages and barriers to entry.

Other factors influencing buyer appetite include the size and quality of the customer base, international expansion potential, and opportunities for cross-selling or integration with existing platforms. Market timing and sector trends, such as increased demand for cloud adoption and digital transformation, further underpin willingness to pay premium multiples. Additionally, strategic buyers and private equity investors often value consolidation potential, seeing bolt-on acquisitions as a way to scale quickly and enhance overall portfolio returns. Ultimately, the combination of recurring revenue strength, market position, growth potential and technology differentiation shapes both buyer appetite and the multiples paid.

Key factors that can influence the value have included:

• Predictable and High Proportion of Recurring Revenue – Provides buyers with confidence in future cash flows.

• Strong Customer Retention and Low Churn – Demonstrates the stickiness and reliability of the product.

• Consistent Growth in ARR or User Base – Signals scalable potential and sustainable expansion.

• Proprietary Technology – AI-enabled features or vertical-specific solutions often command a premium.

• Differentiated Product Offering – Creates barriers to entry and enhances competitive advantage.

• Operational Efficiency & Profitability – Clear unit economics and margin-accretive businesses attract higher multiples.

• Market Positioning & Brand Reputation – Strong market presence and a recognised brand enhance perceived value.

• Strategic Synergies – Opportunities for cross-selling into existing customer bases or entering new markets.

• Management Team Quality – Experienced, capable leadership increases buyer confidence.

• Regulatory Compliance & IP Protections – Compliance and strong intellectual property safeguard the business and add value.

• Overall Strategic Fit – The combination of financial performance, growth prospects, defensibility and alignment with buyer strategy drives the valuation range.

FACTORS DRIVING HIGHER VALUATIONS AND EBITDA MULTIPLES

Valuations in the SaaS sector are shaped by growth, scalability, retention and competitive differentiation. Key drivers include:

1. RECURRING REVENUE & CONTRACT QUALITY • High ARR/MRR with predictable renewal patterns significantly boosts valuation. • Multi-year, enterprise-grade subscription contracts command premiums. • High gross retention (GRR > 90%) and strong net retention (NRR > 120%) are major value drivers. 2. PRODUCT STICKINESS & MISSION-CRITICALITY • Software deeply embedded in customer workflows achieves low churn and high upsell opportunities. • Mission-critical tools (security, finance, operations) earn higher multiples than replaceable utilities.

3. GROWTH RATE & SCALABILITY • SaaS valuations correlate strongly with revenue growth:

• High scalability with low incremental cost supports strong EBITDA leverage. • >30% annual growth: premium valuations • 10–20% growth: mid-range valuations

4. TECHNOLOGY, IP & AI CAPABILITIES • Proprietary platforms and strong technical moats (APIs, AI models, automation engines) attract investor demand. • AI-native products with predictive and generative capabilities command premium valuations.

5. MARKET POSITION, BRAND & CUSTOMER DIVERSIFICATION • Broad and diversified customer bases reduce concentration risk. • Strong brand, network effects and established ecosystems enhance defensibility.

6. UNIT ECONOMICS & PROFITABILITY Higher valuations for companies demonstrating: • Gross margins above 70–80% • Efficient CAC payback (ideally <12 months) • Healthy LTV/CAC ratios (3x–5x+) • Scalable cost structures and path to profitability

7. CHURN, ENGAGEMENT & USAGE METRICS Investors closely evaluate:

• Daily/Monthly Active Users (DAU/MAU) • Feature adoption rates

• Expansion revenue from upsells • Churn below 5–10% annually

Low churn and strong usage signal product-market fit and enhance valuation multiples.

8. PRIVATE EQUITY & STRATEGIC CONSOLIDATION ACTIVITY • The SaaS sector remains a top target for private equity roll-ups and strategic cloud acquisitions. • High consolidation activity increases competitive tension, boosting valuation multiples. 9. VERTICAL SPECIALISATION & REGULATORY ALIGNMENT • SaaS companies tailored to industries with complex regulations (healthcare, finance, construction, legal) command higher valuations. • Vertical SaaS benefits from very high switching costs and lower competition.

M&A INTEREST FROM ACQUIRERS AND INVESTMENT ROUTES

ACQUIRER INTEREST: •

Strategic (Trade) Buyers – Technology companies, software incumbents or sector specialists often acquire SaaS businesses to expand their product offering, enter new verticals or gain market share. They are particularly attracted to proprietary technology, AI-enabled solutions, and platforms with strong customer retention. • Private Equity Investors – PE firms target SaaS businesses for their recurring revenue models and scalability, often using a ‘buy-and-build’ strategy to consolidate fragmented markets. These investors are focused on businesses with predictable ARR, high margins, and potential for bolt-on acquisitions. • Family Offices and Venture Funds – These investors are increasingly active in SaaS, particularly where there is strong growth potential, defensible technology and an opportunity to support the business in scaling internationally.

• International Buyers – Overseas companies, particularly from the US and Europe, see UK SaaS firms as attractive due to strong technical talent, a mature SaaS ecosystem and competitive valuations.

INVESTMENT ROUTES: • Trade Sale/Strategic Acquisition – Selling directly to a larger technology or sector-specific company to leverage synergies and accelerate growth.

• Private Equity Investment – Either a majority or minority stake to support growth, fund acquisitions or improve operational efficiency.

• Minority Investment/Growth Capital – Often from venture or growth funds to fund expansion without relinquishing full control.

• Public Markets/IPO – Less common for UK mid-market SaaS, but remains an option for larger businesses seeking capital for growth or international expansion.

KEY ACQUIRERS AND INVESTORS Major players in this sector include

M&A ACTIVITY IN THE SOFTWARE-AS-A-SERVICE SECTOR

MD CONSENTS ACQUIRED BY ENGAGEDMD

KBS DEAL

London-based MD Consents, a specialist provider of SaaS solutions for the healthcare sector, was sold to American company Engaged MD, a developer of intuitive solutions which automate administrative healthcare delivery tasks.

FORECAST ACQUIRED BY ACCELO

Altrincham-based Forecast, a global provider of AI-powered project and resource management software, was acquired by Accelo, a cloud-based platform for Professional Services Automation.

PUSHFAR ACQUIRED BY SCALEUP CAPITAL

KBS DEAL

PushFar, a world-leading, London-based global mentoring software platform utilised by professionals and students to progress their careers, was sold to ScaleUp Capital, which invests in growing companies to accelerate their expansion.

SOCIAL SNOWBALL ACQUIRED BY DOTDIGITAL

London-based cross-channel marketing automation platform and services provider Dotdigital acquired American influencer and affiliate marketing platform Social Snowball in a deal valued at $35m (£25m).

ADVIZZO ACQUIRED BY CALISEN

KBS DEAL

Advizzo, developer of a comprehensive SaaS solution that enables commercial organisations and their consumers to improve energy sustainability and cost efficiency, was sold to Manchester-based energy infrastructure specialist Calisen.

IDELTA ACQUIRED BY SWORD GROUP

iDelta, an Edinburgh-based specialist in delivering bespoke data and AI solutions, was acquired by Sword, which provides business technology solutions to the energy, public, commercial and financial sectors throughout the UK.

WATERMARK TECHNOLOGIES ACQUIRED BY SOFTWARE CIRCLE

KBS DEAL

Watermark, a specialist developer and supplier of innovative document management software, was sold to Software Circle (formerly known as Grafenia), a UK-based serial acquirer of vertical market software businesses.

PEAK AI ACQUIRED BY UIPATH

Manchester-based Peak AI, which optimises product inventory and pricing for businesses across a wide range of industries, was acquired by New York company UiPath, a global leader in agentic automation.

INTILERY INVESTMENT LED BY MAVEN CAPITAL PARTNERS

KBS DEAL

Maven VCTs and NPIF-Maven Equity Finance, which forms part of the Northern Powerhouse Investment Fund, both invested in a funding round in Intilery, a Chester based customer data platform and real-time decision engine powering multi-channel campaigns.

DIGITAL SPACE ACQUIRED BY GRAPHITE CAPITAL

Digital Space, a Nottinghamshire-based provider of SaaS security solutions, was acquired by Graphite Capital, which backs companies with enterprise values of £30m to £175m and was attracted by a well-invested and modern services platform and strong customer base.

E-CLINIC ACQUIRED BY CLEARCOURSE

KBS DEAL

ClearCourse Partnership, backed by New York-based private equity fund Aquiline Capital, acquired E-Clinic, a Yorkshire-based provider of patient and clinic management software for the healthcare sector.

LIVINGBRIDGE INVESTMENT INTO CITNOW GROUP

Livingbridge, a leading mid-market private equity investor, invested in Berkshire-based CitNow, a global provider of front-office software to franchised car dealerships to improve efficiency and conversion of sales and aftersales.

CPOMS ACQUIRED BY ECI PARTNERS

KBS DEAL

Yorkshire-based CPOMS, a market-leading software solution for monitoring safeguarding and pastoral needs in the education sector, was acquired by ECI Partners, a private equity firm which invests between £25m and £100m in deals valued up to £200m.

In the UK software/SaaS space, we have seen deal values that have been calculated on adjusted EBITDA/earnings multiples ranging from 5–6x to double-digit figures.

CONTACT US TODAY

As you can see from the M&A activity section, we have advised on numerous transactions within this sector and maintain a high-level of acquirer appetite and registered buyer interest.

We would be keen to speak with you regarding your potential exit or succession plans. If you are open to exploring this avenue or have any questions regarding these insights, please do not hesitate to call us on 0161 222 0072.

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