Why SaaS Businesses Are in High Demand

Software-as-a-Service (SaaS) companies have become some of the most attractive acquisition targets in recent years. With subscription-based revenue models, high scalability, and global reach, they appeal to both strategic and financial buyers.

If you’re considering buying a SaaS business, you have the opportunity to acquire a digital asset with predictable income and strong growth potential. But success requires knowing exactly what to evaluate before making a move.

At Merge, we’ve helped buyers acquire SaaS companies ranging from niche productivity tools to enterprise-level platforms. Here’s how to determine whether a SaaS acquisition is worth the investment.

1. Recurring Revenue Model

One of the biggest advantages of buying a SaaS business is the recurring revenue. Unlike one-time sales, subscription models generate predictable income each month or year.

Why it matters:

  • Easier to forecast cash flow.

  • Higher customer lifetime value (LTV).

  • Greater resilience in economic downturns.

💡 Look for businesses with a high percentage of annual or multi-year contracts for added stability.

2. Churn Rate and Customer Retention

Churn—the percentage of customers who cancel over a given period—is one of the most important metrics in SaaS. A low churn rate means strong product-market fit and customer satisfaction.

Key questions:

  • What’s the monthly and annual churn rate?

  • What strategies are in place for retention?

  • Are there patterns in why customers leave?

3. Customer Acquisition Cost (CAC) and Payback Period

Efficient growth depends on how much it costs to acquire each customer and how quickly that investment is recouped.

Healthy indicators:

  • CAC that allows for profitable scaling.

  • A payback period (time to recover CAC) of under 12 months for most SaaS models.

  • Balanced growth between organic and paid acquisition channels.

4. Product Quality and Roadmap

When buying a SaaS business, you’re also buying the product’s future potential. Review:

  • Current feature set and competitive differentiation.

  • Product roadmap and planned enhancements.

  • Customer feedback and support tickets for recurring issues.

5. Scalability of the Platform

SaaS businesses are inherently scalable, but infrastructure and technology still matter. Assess:

  • Cloud hosting and architecture stability.

  • Ability to handle increased user demand without major investment.

  • Security measures and compliance with relevant regulations (e.g., GDPR).

6. Market Position and Competition

Understanding where the SaaS company sits in the market will guide your growth strategy. Evaluate:

  • Size and growth rate of the target market.

  • Competitive advantages (e.g., niche focus, proprietary features).

  • Potential threats from new entrants or larger players.

7. Financial Performance and Unit Economics

Financial health in SaaS goes beyond revenue. Review:

  • Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR).

  • Gross margins (SaaS businesses often have margins above 70%).

  • Net Revenue Retention (NRR) to see how upsells and expansions offset churn.

8. Sales and Marketing Engine

A strong go-to-market strategy is crucial for sustainable growth. Ask:

  • What’s the breakdown between inbound and outbound leads?

  • Which marketing channels are most effective?

  • Is there a sales team, and how is it structured?

9. Team and Technical Talent

In SaaS, the team—especially developers and product managers—can be as valuable as the software itself. Consider:

  • The experience level of key personnel.

  • Whether the development team is in-house or outsourced.

  • Employee turnover rates and retention plans.

10. Growth Opportunities

Even a profitable SaaS business should have clear growth potential. This could include:

  • Entering new markets or verticals.

  • Adding complementary features or integrations.

  • Expanding pricing tiers or upsell opportunities.

  • Improving onboarding to boost retention.

11. Risks and Red Flags

Watch for warning signs when buying a SaaS business:

  • Overreliance on a single customer or small group of customers.

  • High churn rates with no clear improvement plan.

  • Outdated technology that will require costly upgrades.

  • Lack of intellectual property protection.

12. Transition and Knowledge Transfer

A smooth transition is vital for maintaining customer satisfaction and operational continuity. Plan for:

  • Training from the seller on product, systems, and processes.

  • Knowledge transfer from technical staff.

  • Communication strategies for customers during the change in ownership.

The Merge Advantage in SaaS Acquisitions

At Merge, we help buyers:

  • Analyze SaaS-specific metrics and performance.

  • Conduct in-depth product and market evaluations.

  • Structure deals for long-term scalability.

  • Facilitate smooth transitions that retain customers and talent.

Final Thoughts

Buying a SaaS business can provide recurring revenue, global scalability, and long-term value—if you choose wisely. By focusing on key metrics like churn, CAC, and ARR, along with product quality and market positioning, you can identify opportunities that deliver both stability and growth.

If you’re ready to explore SaaS acquisition opportunities, connect with Merge and we’ll help you find the right fit.