Multiple Arbitrage in Micro SaaS
MULTIPLE ARBITRAGE IN MICRO SAAS
A CONVENTIONAL PLAYBOOK IN LOWER MIDDLE MARKET PRIVATE EQUITY
Historically, lower middle market SaaS buyout strategies are built around a playbook that involves acquiring a sub-scale SaaS business at ~$5M for ~3.5x and growing it to $10M to then exit at a ~5x-8x. This playbook exploits ‘multiple arbitrage’ where the market perceives larger firms as more stable, thus they command a premium and multiples naturally expand (to a degree) as a function of ARR category ($5M vs $10M). From a growth perspective, the holy grail is to 2x the firm in 3yrs or less (at a ~30% CAGR).