The M&A deal structure shapes what founders actually take home and when, including the assets acquisition and liabilities involved in the transaction. Furthermore, the mix of cash and potentially stock, and deferred consideration determines how much of the company’s future value may remain in your hands post-acquisition.
Understanding how different deal structures work, and what they truly mean for both you as the founder and your team, can help you make an informed choice when it’s time to evaluate offers.
The anatomy of a deal: process and structure
In a typical SaaS M&A deal, the deal structuring process starts to take shape as soon as a Letter of Intent (LOI) is being negotiated. Aside from the proposed valuation, LOIs will also outline the consideration mix, the target company’s assets being acquired, and the key conditions of the transaction. Following the LOI, the due diligence stage becomes critical, requiring careful preparation and documentation by the seller. The final structure of the deal is then confirmed and reflected in the Share or Asset Purchase Agreement.
Although every transaction is unique, most deals balance four factors: payment mechanics, timing, control, and performance alignment.
1. Payment mechanics
The first question in any deal is how value will change hands. Most SaaS transactions combine cash, stock, or a hybrid of both. The mix you negotiate can also shape the valuation perception and taxes.
Founder perspective: Understanding why a buyer prefers a certain mix in an M&A deal structure can strengthen your negotiation leverage. For example, a buyer pushing for a percentage of the target company's stock might be protecting cash flow or signaling belief in future growth.
Conversely, some buyers may prefer cash-heavy offers to avoid the complexity of negotiating equity rollovers, which can affect valuations and the allocation of future upside. Knowing these motivations lets you position your flexibility as an added value in the negotiation.
Takeaway: Always model after-tax proceeds under different scenarios.
2. Timing of payout
Often, M&A structures spread payments over time to align incentives or manage risk. Deal structures that include earnouts tie future payments to performance milestones like Annual Recurring Revenue (ARR) or retention, while holdbacks delay a portion to cover potential claims.
These mechanisms can bridge valuation gaps and build trust during the negotiation, even if they extend exposure beyond the sale. For founders, clarity on timing and KPIs is critical to ensure the deferred portion of value is actually realized.
Negotiation insight: When agreeing to an earnout, define metrics in writing. For example, ARR should mean recognized ARR, not booked. Also specify who controls the decisions that will affect those metrics after the purchase agreement is signed.
Takeaway: If you can’t influence the metric, you shouldn’t depend on it. That’s why when discussing earnouts, try to prioritize KPIs based on revenue over EBITDA.
3. Governance and control of the target company
Every structure sets the tone for post-close influence. The right structure balances involvement without extending responsibility, especially once the strategic control shifted hands.
For example, in partial or stock-based exits, founders may retain a minority stake, a board seat, or an advisory role to guide continuity.
For buyers, governance provisions safeguard the integration process and ensure accountability for performance targets.
Founder perspective: If you’re retaining equity or a role in the board, clarify your authority early, as advisory input rarely equals decision rights. Having clarity on governance clarity will protect you if the direction after the acquisition changes.
Takeaway: Decide how much influence you truly want once the deal closes.
4. Performance & risk
Ultimately, structure reflects how both sides view the company’s future. Buyers use earnouts, deferred consideration, or equity rollovers to share both risk and upside, rewarding the seller based on the results after closing.
On the other hand, founders look for predictability and clear payout triggers by fair definitions of metrics, and limited dependence on factors they can’t control.
Negotiation insight: Ask the acquirer how they define success: is it retention? ARR? or EBITDA? Their answer reveals how they’ll measure you during the earnout period. Aligning expectations early prevents conflict later.
Takeaway: A deal structure tied to performance works best when both sides define success the same way.
M&A deal structures for SaaS companies
1. Cash deals: clarity and simplicity at a cost
Cash deals are the most straightforward path for founders ready to transition out.
- Why it works: There’s no dependency on the future performance of the company or the share price. The seller exits with certainty and minimal to none post-closing obligations.
- Trade-offs: Cash-heavy deals typically come with valuation discounts, reflecting the buyer’s assumption of future operational risk. They can also be inefficient in terms of taxes, as proceeds are realized immediately.
- Best fit: Mature SaaS companies with predictable ARR, strong retention, and limited reliance on founder leadership, where the buyer’s confidence in continuity is already high.
2. Stock purchases: shared risk and long-term alignment
Stock-based consideration allows founders to get part of the buyer’s future gains. Instead of taking full payment in cash, a part of the purchase price is paid in shares of the acquiring company.
- Why it works: It aligns interests between seller and acquirer, particularly when both operate in the same market or product ecosystem.
- Risks: Valuation volatility and lack of liquidity. If the acquirer’s stock underperforms or lock-up periods delay selling, founders may see delayed or diminished returns. Founders should also be cautious with heavily diluted companies, which may structure acquisitions using additional stock options that can further reduce ownership over time.
- Best fit: This structure is ideal for founders who believe in the strategic direction of the acquirer and are comfortable with a longer horizon for value realization.
3. Earnouts: bridging valuation gaps in SaaS
Earnouts tie part of the purchase price to future performance through metrics like ARR growth, churn reduction, or EBITDA margins.
- Why it works: Very common in today’s market, earnouts help close deals even when the buyer and the seller disagree on the valuation of the target company, linking payout to post-close results. They also allow both parties to share transaction risk and create early alignment on the company’s future performance.
- Challenges: Success depends on clear metric definitions and governance. If integration changes the business model or reporting cadence, earnout targets can become hard to measure or achieve.
- Best fit: High-growth SaaS firms with strong momentum but differing views on short-term valuation, where both sides agree to share in future upside.
4. Mergers: strategic alignment over liquidity
When companies combine into a single entity, the consideration can vary (sometimes stock-for-stock, sometimes cash, or a mix of both), giving both sides ownership in the combined platform while focusing on strategic alignment rather than immediate liquidity.
- Why it works: Creates scale, expands market share, or helps integrate complimentary technology stacks. It’s often driven by strategic logic rather than a liquidity event.
- Trade-offs: Complex integration, shared governance, and dilution of control. Decisions require consensus, and post-merger alignment can be demanding.
- Best fit: Founders aiming to build a larger, market-leading platform rather than exit fully particularly when both businesses or parties involved share similar culture, customers, or product vision.
How to choose the right structure for your SaaS exit
For founders, the M&A deal structure can be a strategic lever to get the most of the acquisition deal. Below is a decision framework to guide how different founder objectives translate into structure design.
1. Exits focused on liquidity
For founders seeking a clean break, cash deals provide immediate liquidity and a straightforward transition. These are rare in today’s market but might be an option when founders plan to step back from operations or invest capital into new ventures. While they deliver certainty, they can also trigger higher immediate taxation and remove future upside potential, which is often reflected in discounted multiples.
2. Exits focused on growth
For founders who believe in the acquirer’s long-term potential, stock consideration or rollover equity offers participation in value creation. This structure maintains alignment with the acquirer’s success but introduces exposure to market performance and delayed liquidity.
Beware: not all acquirers are open to this, since it adds complexity to the deal and raises questions about how valuations are aligned. Earnouts might have just the same effect in a reduced time frame, especially if negotiated uncapped.
3. Transactions focused on performance
Earnouts and deferred considerations are not precisely a deal structure, but a tool that provides flexibility for both the buyer and the seller, when they differ on the valuation in the short term.
It ties part of the purchase price to the performance after the transaction, creating alignment while keeping both sides accountable. As mentioned before, a good alternative for rollover equity when founders seek to capitalize on the short and medium term growth the new joint venture may create.
4. Hybrid structures
Many SaaS deals combine multiple components like cash upfront, earnouts, a small percentage of rollover equity, and sometimes stability or deferred payments. These hybrid models balance certainty with upside, aligning the incentives for sellers and acquirers across different time horizons.
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Consult an experienced partner to get the right deal structure
Selecting the right deal structure is not a simple decision, and you don't need to do it alone. Moreover, to gain meaningful leverage and the ability to choose between multiple options, you’ll likely need to run a competitive process that brings several bidders to the table. This approach not only helps clarify your options but also positions you to negotiate from a stronger, more informed position.
At L40°, we built this leverage for our deals and guide SaaS founders through transactions involving complex cash, stock, and earnout combinations. Our team works closely with sellers to ensure each component of an offer serves both their strategic and personal objectives. Contact us to get guidance on choosing the best deal structure for your SaaS.
