What has changed in how buyers value tech-enabled services, and why the gap to SaaS multiples moved

Five years ago the median SaaS acquisition was priced at 7.3x trailing revenue. In Q2 2026 it was 4.0x. Listed software fell further: the SaaS Index went from 17.4x revenue in February 2021 to 3.2x in the same quarter of 2026.

If you run a tech-enabled services business, that has changed the conversation with buyers. The gap between service and software multiples is narrower than it was five years ago and, in our view, most of that movement came from the software side. Services businesses did not become more valuable overnight. Rather, software came down to meet them. And buyers started asking both types of businesses the same questions.

Then: the label did the work

During the peak valuations period, money was cheap and growth was the headline. Buyers took their cue from public software valuations and a company that could describe itself as software, even with a large service delivery team behind the product, could ask to be priced on revenue. Payroll bureaus with their own platform, recruitment firms with proprietary matching tools and managed IT providers often presented themselves as "SaaS-like", and some buyers went along with it.

Now: growth and margin do the work

In recent years, higher interest rates have pushed buyers back to cash flow, and the label matters much less than the economics underneath it. Among publicly listed companies, businesses scoring above 40 on the weighted Rule of 40 (revenue growth plus EBITDA margin) traded at 7.3x revenue, more than twice the index median of 3.2x. Buyers now put services businesses through the same test.

For services businesses priced on earnings, the reference points are steadier. Private IT consulting firms can be valued at 9.0x to 14.0x EBITDA (1.6 to 2.4x revenue) and managed IT providers at 6.0x to 12.5x EBITDA. Size moves the multiple sharply: Managed service providers with less than $1.5m of EBITDA can be valued at 5x to 7x, whereas scaled platforms above $15m with strong recurring revenue at 16x to 18x.

Buyers have not stopped buying. What changed is what they now pay for.

A worked example

Take two businesses, each with $20m of revenue growing 20% a year (illustrative figures).

• Company A sells subscription software at an 80% gross margin: $16m of gross profit and a 10% EBITDA margin.
• Company B sells software plus a delivery team that runs it for clients, at a 45% gross margin: $9m of gross profit and $3m of EBITDA, a 15% margin.

Suppose a buyer values both on gross profit at 6x. Company A is worth about $96m (4.8x revenue) and Company B about $54m (2.7x revenue). The whole gap comes from gross margin.

Now suppose the buyer treats Company B as a services firm and pays 8x EBITDA, inside the range for managed IT providers. Company B is worth about $24m. Same company, same numbers, a $30m difference depending on which lens the buyer picks. Note that Company B scores 35 on the Rule of 40 against Company A's 30. Five years ago its founder could often overlook the Rule of 40 aspect. Today, it is at the heart the argument for businesses with a strong services component.

What this means in practice for businesses with services revenue

• Split revenue and gross margin by line: subscription, transactions, implementation, managed service. Buyers will do it in due diligence; better that your version is the first one they see.
• Contract the recurrence. Turn repeat project work into multi-year service agreements with defined service levels. Buyers pay for contracted revenue, not for customers who happen to come back.
• Measure retention across all customers, services included, the way a software buyer would: net revenue retention by cohort.
• Know your Rule of 40 and how a buyer will calculate it, including which costs sit above gross margin.
• Decide on scale. The multiple rises steeply with size, so weigh selling as an add-on now against building towards platform size first. The largest managed service providers command more than twice the multiple of the smallest.

Before you start a process, ask your board and your advisors this question: which valuation lens will a buyer use for this business, and does our reporting support the one we want?