In almost every software sale, sellers try to anchor valuations on revenue: the ARR multiple a peer achieved or the 10x exit that made the headlines. Buyers, however, particularly private equity firms, tend to focus on earnings.
In my experience, most offers in today's mid-market software M&A processes are built around EBITDA multiples. The revenue multiple, if anything, is often just the headline quoted afterwards.
In 2026, buyers weigh profitability and operating maturity far more heavily than growth alone. The median EV/EBITDA multiple for SaaS private equity deals fell to 11.7x, from 20.4x in 2025.
In this article, I'll explain how financial buyers translate EBITDA into a valuation, what drives SaaS EBITDA multiples up or down, when revenue multiples still matter, and what sellers should prepare before going to market.
Key Takeaways
The ARR multiple is the headline, but EBITDA is the math
An EBITDA multiple is enterprise value divided by EBITDA, or earnings before interest, taxes, depreciation and amortization. A revenue multiple is enterprise value divided by revenue or ARR. Both may describe the same price, but they differ in what the buyer is underwriting.
In most processes L40° runs today, offers from financial buyers are built on EBITDA. The ARR multiple is , if anything, the output that gets quoted after signing, not the input that got modeled before the offer.
The two diverge because every revenue multiple embeds an assumption about margin. Take the 3.9x average EV/Revenue for sub-$1bn disclosed 2026 tech deals, excluding outliers at 20x or higher. At a 30% EBITDA margin, that price equals 13x EBITDA. At 20%, it equals 19.5x. At 40%, it is about 9.8x.
Those conversions are a simple L40° calculation: the revenue multiple divided by the EBITDA margin. The same revenue multiple can therefore tell three very different earnings stories.
The 10x-plus deals in the press are a different matter. They are outliers, and I would not build an exit plan around them.
What SaaS EBITDA multiples look like in 2026
It is difficult to provide a definitive range for SaaS EBITDA multiples. There is no single source of truth, and most private mid-market transactions do not disclose their financial terms. I would emphasize that the actual multiple will always depend on the company being valued and the type of buyer involved, whether financial or strategic.
That said, for the purpose of this article, I’ve gathered several datasets, each covering a different segment of the market. None is a direct comparable for a SaaS company with $5M to $100M in ARR, but taken together, they can provide useful reference points for understanding SaaS valuations in 2026.
Looking at the data, three things stand out.
The first is compression. The median EV/EBITDA for SaaS PE deals fell to 11.7x, nearly converging with non-SaaS multiples as AI disruption risk and a higher cost of capital reset the old software premium.
For comparison, the global median PE EV/EBITDA across all sectors was 10.2x year to date in 2026, down from 11.9x in 2025. Inside private equity, software no longer carries much of a premium.
The second is size. In US private equity, deals between $25M and $100M carried a median 8.5x EBITDA in Q1 2026, against 13.2x for deals between $500M and $1B. That data covers all sectors, not software alone, but the direction is clear: smaller companies clear lower multiples.
The third is buyer type. Disclosed strategic software transactions reached a median 20.2x EV/LTM EBITDA in H1 2026, close to double the PE figure for SaaS.
It is worth reiterating that none of these datasets specifically tracks EV/EBITDA multiples for SaaS companies with $5M to $100M in ARR. They provide useful benchmarks, but where a particular company lands will ultimately depend on its financial profile and the buyer's valuation approach.
The payback test: how a financial buyer gets to a number
To understand the logic behind EBITDA multiples, let's take a financial buyer as an example. Financial buyers build their own models, apply a discount rate, typically based on their weighted average cost of capital (WACC), and work backwards from their required payback period and return thresholds. Ultimately, the price they can pay is determined by what their financial model supports, as our Partner at L40º Manuel Amor tends to say.
These thresholds are rarely public. An active, well-known software acquirer, who asked not to be named, told us that its underwriting typically requires an investment to pay back within four to five years, or up to six in certain cases.
That payback period has a significant impact on the valuation. The table below illustrates how much cumulative EBITDA a business generates over four, five, and six years at different growth rates, expressed as a multiple of its current EBITDA. Each cell represents the theoretical multiple a buyer could pay if the acquisition price were recovered entirely through those earnings.
A business with flat EBITDA generates the equivalent of 4x to 6x its current annual EBITDA over a four-to-six-year period. But as earnings grow, so does the amount a buyer can justify paying. At 30% annual EBITDA growth, for example, five years of cumulative earnings would equal approximately 11.8x today's EBITDA.
The impact is even greater for high-growth companies. A business that doubles its EBITDA every year would generate 16x its current annual EBITDA in year four alone.
Of course, these are simplified calculations. In practice, buyers discount future earnings and account for taxes, reinvestment, and other cash flow requirements. The multiples they can actually afford to pay will therefore be lower than the figures in the table.
Overall, the goal of this little exercise is to help explain why two SaaS companies with similar ARR can command very different EBITDA multiples.
What moves a SaaS EBITDA multiple up or down
Within the range of the data sets, four factors decide where a company lands.
- Margin headroom: A company still investing heavily in product, or still capturing operating efficiencies, shows low EBITDA today. A buyer can justify a higher multiple on that EBITDA because it is modeling expansion. A company already running at 50% to 60% EBITDA margins has little left to expand, so the multiple is anchored on what already exists.
- Growth: Low growth compresses the multiple. High growth is the main lever that justifies more, as the payback table shows.
- Quality of the EBITDA: Buyers normalize EBITDA in diligence. Aggressive revenue recognition or inconsistent capitalization of development costs lowers normalized EBITDA and, with it, the price. The multiple is applied to the buyer's EBITDA, not the seller's.
- Rule of 40: Growth plus EBITDA margin is the shorthand buyers use to weigh the two levers together. The Rule of 40 does not set the price, but it frames which lever the buyer will model. A company at 30% growth and a 10% margin and one at 5% growth and a 35% margin both score 40. A financial buyer will usually pay more per dollar of EBITDA for the first, because the payback math rewards growth.
When revenue multiples still win: the strategic buyer
In my view, the main reason to price directly on revenue is a strategic buyer with strong synergies. That buyer has an internal case for what the technology is worth inside its own business: cross-selling into its customer base, closing a product gap, or accelerating its roadmap.
Strategic buyers are often more bullish on the business case, have capital to deploy, and may have motives beyond pure financial returns. That can allow them to pay above what a financial buyer's model supports. Disclosed strategic software deals reached a median 20.2x EV/LTM EBITDA in H1 2026, well above the PE median.
Much of the year's capital also went to AI: AI-related transactions accounted for 81.7% of SaaS M&A value in H1 2026, with strategic acquisitions driving the largest deals.
But a strategic premium is far from guaranteed. Without a clear synergy case, a strategic acquirer may value a business much like a financial buyer, based on the earnings it can underwrite. Moreover, some strategic buyers are becoming more cautious about acquisitions as they assess how AI could affect their own business models, competitive positioning, and valuations.
A fuller comparison of the two main buyer types sits in financial vs. strategic buyers.
What this means for founders
Four steps follow from the buyer's math.
- Know which metric your buyers will price on: If the likely buyers are financial, expect an EBITDA-based offer and prepare to defend EBITDA, not just ARR. If a strategic is in the mix, prepare the synergy case it will build internally: which customers, which product gaps, which roadmap.
- Show the margin path, not just the margin: If EBITDA is depressed by product investment, document where it goes once that spend normalizes. That is what lets a buyer model expansion and pay for it.
- Get your EBITDA diligence-ready: Normalized, adjusted EBITDA that survives a Quality of Earnings review protects the multiple. Adjustments a buyer cannot verify will not survive diligence.
- Put strategics and financial buyers in the same process: The strategic buyer is often the only bidder able to price above the payback ceiling, and competitive tension is what surfaces that number. Building that buyer mix is the core of a sell-side advisory mandate.
Price follows the buyer's model
Price is set by the buyer's model, not by the multiple a founder heard at a dinner. The founder's job is to give each type of buyer the inputs that justify a higher number: earnings a financial buyer can underwrite, and a strategic case that only a strategic buyer can pay for.
Preparing for an exit and want to know how buyers will price your EBITDA? Talk to L40°.
Recommended
- SaaS Multiples 2026: The Real Private Range
- Financial vs. Strategic Buyers: Choosing the Right Fit for Your SaaS
- Earnouts in M&A: What Founders Need to Know
- The Truth About 10x Revenue Multiples in Tech M&A
