Overview of #170: Why Most SaaS Acquirers Still Want Profitable Growth in 2025 — Gaurav Bhasin (Practical Founders Podcast)
In this episode Greg Head interviews Gaurav Bhasin, founder and managing partner of Allied Advisors, about the current SaaS M&A market (2025), what buyers—strategic and financial—are looking for, and practical guidance for bootstrapped founders who may be planning an exit or minority transaction. The conversation focuses on realistic expectations, deal timelines, the metrics that matter, how to prepare and run a competitive process, and where AI fits into acquisition theses.
Key takeaways
- The M&A market has tightened since the boom years; buyers now prioritize profitable, sustainable growth rather than “growth at all costs.”
- Typical deal timelines have lengthened: plan ~9–12 months from process launch to close (6 months possible for highly motivated buyers).
- Strategic buyers will often pay a premium for tech, team and clear synergies. Private equity (PE) is abundant and active, but typically prizes financial metrics and may pay a bit less.
- Practical founders (bootstrap / lightly capitalized) are attractive to many acquirers—especially at $10M+ ARR where buyer interest rises materially.
- AI helps, but it must be practical: “AI as lipstick” (signal AI capability), with proven ROI and an eye on gross margins (AI costs can be high).
Who’s buying and why
- Strategic buyers (e.g., large tech corporates)
- Motivations: acquire tech, teams, go-to-market (GTM) synergies or a beachhead in a new market.
- Can pay substantial premiums if they see strong strategic fit and distribution leverage.
- Often buy 100% and expect founders to stay for integration/transition (1–3 years common).
- Financial buyers (private equity and PE-backed strategics)
- Motivations: financial returns, recurring revenue, stable margins; they like SaaS unit economics.
- Have huge capital pools (Bhasin cites ~$1.5T of capital and ~$7T of dry powder in funds + debt) and are active dealmakers.
- Tend to focus more on financials (margins, retention, growth) and may require founders to roll equity (20–30% rollover typical).
- Faster to make an offer than big strategics, but perform heavy diligence and can be aggressive on deal protections/escrows/adjustments.
Metrics and signals buyers care about
- Growth: best-in-class often >50% year-over-year, but growth expectations scale with ARR (easier to hit 50% at $5M than at $30M).
- Retention: net retention >110% and gross retention >90% favored for enterprise SaaS.
- Gross margin: SaaS ideally >75–80% (AI-heavy products need margin management).
- Profitability / Rule of 40: profitable growth is favored—Rule of 40 tradeoffs matter (e.g., 40% growth + 0% margin beats 80% growth at -40% margin).
- Customer concentration: avoid single customers representing huge revenue chunks (25%+ is a red flag).
- Clean finances: ready CFO, up-to-date bookkeeping, QoE (quality of earnings) reports reduce friction.
Deal process & timing (practical guidance)
- Typical timeline: 9–12 months from marketing start to close. Prepare for:
- 1–3 months marketing & buyer outreach
- 1–3 months to LOI for interested parties
- 6–12+ weeks of diligence and purchase agreement negotiation
- Prep work speeds things up and reduces risk of value erosion: tidy financials, resolve material customer or tech issues in advance, perform internal or independent QoE if possible.
- Run a competitive process (broad initial outreach → shortlist → final offers). Multiple bidders increase tension and improve outcomes.
- Use short, structured exclusivity windows in negotiations (e.g., require commitment/purchase agreement within a few weeks) to avoid getting locked into protracted, value-eroding diligence.
Valuation & deal structure considerations
- Headline valuation = only part of the story. Important deal economics:
- Cash upfront vs stock: what percent of the purchase price is liquid?
- Escrow and holdbacks: percentage and duration (12–24 months common).
- Rollover equity with PE: you often must reinvest a portion of proceeds to align incentives.
- Earnouts/retention payments: additional future pay tied to performance or retention.
- Founder expectations must align with market reality: many sellers expect higher multiples than buyers will pay—market comps and advisor guidance help set realistic targets.
Working with an M&A advisor (benefits)
- Market expertise: advisors know likely buyers (strategics, PE, PE-backed strategics) and can give a market-value estimate.
- Deal management: they prepare materials, run the diligence “data room,” create process timelines, and manage buyer interactions.
- Competitive auction: a good advisor creates buyer tension and prevents one-off lowball deals.
- Emotional buffer: advisors act as a calm intermediary through a stressful, infrequent event for founders.
AI: how it affects M&A attractiveness
- AI is valuable if implemented practically:
- Embed AI in product to reduce costs, improve outcomes, or speed GTM—don’t add AI for PR only.
- Watch economics: token/compute costs can erode gross margins; ensure a clear ROI.
- Buyers expect an AI strategy; make it visible (but sensible).
- “Lipstick” advice: make AI part of your story and product where it delivers measurable customer value.
Practical action checklist for founders (what to do now)
- Benchmark yourself: use SaaS metrics reports (e.g., SaaS Capital / industry peers) to see where you sit.
- Clean up finances: hire/retain CFO, prepare audited or reviewed statements, consider QoE.
- Reduce customer concentration and document contract terms.
- Improve gross margins where possible and track net/gross retention.
- Prepare a short “sell-side” checklist: product roadmap, top 10 customers, tech stack documentation, IP ownership, key employee agreements.
- When approached by inbound buyers:
- Spend 10–15 minutes to evaluate fit (industry focus, check size, thesis).
- Don’t overshare detailed metrics prematurely.
- Keep a running log of interested firms and their fit.
- If running a process, insist on short exclusivity timelines and multiple bidders.
Notable quotes / memorable lines
- “Know what game you’re playing.” — choose a path (VC growth-at-all-costs vs. steady bootstrapped growth).
- “The era of growth at all cost is out the window. People want profitable growth.”
- “AI is lipstick — put it on your product if it adds customer value.”
Resources & how to reach Gaurav Bhasin / Allied Advisors
- Allied Advisors: works with B2B SaaS companies primarily in the sub-$200M (enterprise value) market; most deals under $100M.
- Typical engagement: start with an exploratory conversation, get a market check, and then, if aligned, run a process.
- Contact (as shared in episode): gbhasin@alliedadvisors.com
- Allied Advisors’ “state of tech / M&A” report (mentioned) is available via their website — check their resources for benchmarks and industry data.
Podcasters’ note: episode is especially useful for bootstrapped founders deciding whether to keep growing or to consider an exit—practical, metric-driven advice on preparing, pricing and running a sale in today’s more disciplined M&A environment.