Dear SaaStr: When Negotiating an Acquisition, Should We Factor In The Coming Month’s ARR?
Yes, you absolutely should factor in the latest month of new revenue when negotiating an acquisition—especially if the business is growing consistently. Show the trend, and negotiate off where ARR is going to be when the deal closes. Or at least at the end of the current month, not last month.
But there’s a nuance to how this plays out in practice.
1. Buyers Look at Trends, Not Just a Single Month:
While the latest month of revenue growth is important, most buyers will want to see a consistent trend over several months. A single strong month won’t necessarily move the needle unless it’s part of a broader pattern of growth. For example, when we were negotiating the acquisition of EchoSign by Adobe, even a slight dip in our monthly growth rate caused some concern. It wasn’t about one month—it was about the trajectory over time. Buyers want to see that the growth is repeatable and sustainable.
2. Valuation Can Slide Up with Growth:
If your business is growing steadily, the valuation should adjust upward as you continue to hit new revenue milestones. This is especially true in SaaS, where growth rate is a key driver of valuation multiples. For instance, a SaaS company growing at 100% year-over-year can command a much higher multiple than one growing at 50%. If your growth rate is outpacing your peers, you can push for a premium valuation.
3. Timing Matters:
The challenge is that deals often take months to close, and buyers may try to lock in a valuation based on earlier numbers. If your revenue is growing significantly during that time, you need to push for an adjustment. This is where having a strong advocate—whether it’s your banker, lawyer, or someone on your team—can make a big difference. They can help ensure that your valuation reflects the most recent data.
4. Be Ready to Justify the Growth
If you’re using the latest month’s revenue to push for a higher valuation, be prepared to explain why that growth is sustainable. Is it driven by a new product launch? A marketing campaign? A shift in the market? Buyers will want to understand the drivers behind the numbers to ensure they’re not just a one-time spike.
So yes, factor in the latest month of revenue. Add every good thing into the metrics you have. Every strong forward and trailing indicator, including your very latest ARR projection.
Just make sure it’s part of a broader growth story. And if the business is growing consistently, don’t be shy about pushing for a valuation that reflects that momentum.
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