Understanding Buyer Motivation in Tech M&A

By recognizing the levers that drive buy-side M&A decisions, sellers can better position their companies and increase the probability of a successful close.

In this article, we break down the specific motivations in the tech M&A landscape, and what sellers can do to align with them.

The Importance of Recurring Revenue

Recurring revenue is a major driver of valuation in technology acquisitions. Businesses with the majority of their revenues coming from SaaS or subscription models routinely trade at higher revenue multiples compared to those with transactional or license-based models (KeyBanc Capital Markets SaaS Survey).

What sellers can do: Maintain a detailed breakdown of your revenue composition by product, contract and customer type. Highlight net revenue retention (NRR), gross churn, and customer lifetime value.

Expanding Through Vertical Markets or Geographies

Strategic buyers often look for companies with strong customer penetration in a niche market or region they want to enter or expand within. For example, companies with a leading market share in a defined vertical are viewed as highly defensible.

What sellers can do: Provide detailed customer segmentation, retention metrics by industry or region, and share of wallet data to show your brand commands strength within that segment.

Scalability of Infrastructure and Codebase

Technical diligence is a critical component of M&A process. Acquirers want clean, scalable code, and well-documented architecture. According to PwC, 42% of failed tech M&A deals cite poor integration readiness as a primary risk (PwC US Tech M&A Integration Survey).

What sellers can do: Invest in DevOps maturity, and highlight cloud-native or API-first architecture.

Product Stickiness and Switching Costs

Products with high switching costs or workflow entrenchment create defensibility. Acquirers value sticky products where customers rely on the software to run mission-critical processes.

What sellers can do: Highlight integration depth, embedded analytics, automation capabilities, and the extent of user dependency. Usage metrics (daily active users, module adoption) can help quantify this.

Strategic buyers are often attracted to capabilities they can’t build quickly enough on their own. According to Bain & Company, 55% of technology acquisitions in the past five years were driven by the need to accelerate digital transformation or access niche functionality.

What sellers can do: Emphasize your defensible IP, domain-specific engineering talent, or speed to market. Demonstrate how your product shortens the acquirer’s roadmap or expands their go-to-market reach.

Final Thought

Sophisticated buyers will evaluate how your company fits into their larger strategy. By providing clean and detailed information during the due diligence process, both buyers and sellers can mitigate the risks of an acquisition.

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