Market ResearchSaaS Roll-ups
SDE multiples hold firm while buyers quietly reprice working capital
Headline multiples in the one to ten million dollar band barely moved this quarter. The negotiation shifted to the peg, where a single definition change can move proceeds by six figures.
Sample editorial content. Companies and figures are illustrative placeholders.
In summary
- Seller discretionary earnings multiples stayed between 3.1x and 4.4x.
- Buyers recovered value through working capital pegs, not headline price.
- Escrow periods lengthened from twelve to eighteen months on average.
- Founders who modeled the peg early kept more of the headline number.
Across the transactions our desk reviewed this quarter, the headline story was continuity. Seller discretionary earnings multiples in the one to ten million dollar enterprise value band clustered between 3.1x and 4.4x, almost exactly where they sat a year ago. Founders reading only the multiple would conclude that nothing changed.
The detail tells a different story. Buyers who could not move the multiple without losing the deal moved the working capital peg instead, and the peg is doing quiet, consequential work.
Where the value actually moved
A working capital peg sets the level of current assets less current liabilities the buyer expects at close. Deliver below the peg and the purchase price adjusts down, dollar for dollar. The mechanism is unremarkable until you notice how much discretion sits in the definition.
- Deferred revenue treated as a liability rather than excluded from the calculation.
- Trailing twelve month averages replacing a normalized quarterly figure.
- Prepaid expenses carved out of current assets during confirmatory diligence.
The multiple is what founders negotiate. The peg is what buyers negotiate.
In software businesses the deferred revenue question is decisive. A company collecting annually in advance can carry a large deferred balance that, treated as an ordinary current liability, drags the peg well below what the founder assumed when signing the letter of intent.
What disciplined sellers did differently
The founders who protected their proceeds did the same unglamorous thing: they priced the peg before exclusivity. They asked for the definition in writing, modeled it against twelve months of actuals, and treated an unfavorable definition as a price reduction to be negotiated rather than a technicality to be conceded.
That framing matters because leverage collapses at exclusivity. A definition that looks procedural in week two becomes a several hundred thousand dollar concession in week nine, when the alternative is restarting a process.