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

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.