Acquisition / Exit
ak-wih-ZIH-shun / EK-sit
The purchase of a company by another company, providing a return to shareholders and a liquidity event for founders and employees.
An acquisition is when another company buys yours. For startup shareholders, it is an 'exit': the moment when equity converts to cash. Acquisitions can be strategic (the buyer wants your product, team, or customers) or financial (the buyer wants the revenue stream).
Acquisition prices for SaaS companies typically range from 5-15x ARR for private companies, though outliers exist. The price depends on growth rate, retention, profitability, strategic value, and competitive dynamics. The revenue multiple is the most common way to benchmark pricing.
The process involves due diligence, negotiation, and legal documentation. Founders often have to stay post-acquisition (earn-out period, typically 1-2 years). Employees may receive retention bonuses or see their unvested equity accelerated. The experience varies widely depending on the acquirer.
Examples
A strategic acquisition for product expansion.
A large platform company acquires a startup for $200M. The startup's product fills a gap in the platform's offering. The startup's team of 40 joins the acquirer. The product is integrated into the platform over 12 months.
A founder negotiates acquisition terms.
The offer: $150M total, with $120M at close and $30M in an earn-out tied to revenue milestones over 2 years. The founder negotiates: increase the upfront to $135M and reduce the earn-out to $15M. They settle at $130M upfront, $20M earn-out.
An acqui-hire for the team.
A big tech company acquires a 10-person startup for $15M. The product is shut down. The team is absorbed into the acquirer's engineering org. The price is effectively $1.5M per engineer. The acquirer wanted the talent, not the product.
Frequently asked questions
What determines an acquisition price?
Revenue (and growth rate), retention metrics, strategic value to the buyer, competitive dynamics (is another buyer interested?), and the startup's negotiating position. SaaS companies typically sell for 5-15x ARR, but strategic acquisitions can command much higher multiples.
What is an earn-out?
A portion of the acquisition price that is paid over time, contingent on hitting performance milestones (revenue targets, retention goals). Earn-outs align the interests of the founders with the acquirer post-acquisition. They typically last 1-3 years.
Related terms
The process of offering shares of a private company to the public for the first time on a stock exchange.
A valuation method that expresses a company's worth as a multiple of its annual revenue, commonly used for SaaS companies.
The investigation process investors conduct before finalizing an investment to verify a company's financials, legal standing, and claims.
Ownership in a company represented by shares of stock, which entitle the holder to a proportional share of the company's value.
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