CrispaPre-Money · Issue 01
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Exit valuation

Improving your exit valuation

A client came to us for help negotiating with a potential buyer. They were offered 6.7–7.6x recurring revenue. Only 4.5x of it was cash; the rest was an earnout. We leveraged their Rule of 40 score and next year’s budget to justify a counter at 8.5x and to take more of it at closing.
By Elie Mascott
5 min read · Pre-Money, Issue 01 · Updated September 2026
The short answer: the offer read 6.7–7.6x recurring revenue, but only 4.5x was cash and the earnout ran against a budget the buyer would control. Risk-adjusted, it was a 5.75x offer wearing a 7.6x label. The Rule of 40 and next year’s budget supported a counter at 8.5x headline (7.4x risk-adjusted), with more of it at closing.
In plain termsRule of 40growth rate plus profit margin, measured against the 40 mark.
In plain termsEarnoutthe part of the price paid after closing, measured against a target such as a budget.

The company sells business software to mid-market customers: profitable, founder-owned, and almost everything it bills is subscription. Recurring revenue grew 27% over the last twelve months, and faster than that in the months since.

A buyer offered 6.7–7.6x current recurring revenue. Two-thirds of it was cash at closing. The rest was an earnout, measured against a budget the buyer would control for the two years it ran.

Discount the earnout for the odds of hitting that budget and for two years of waiting, and the headline falls about a quarter, to 5.75x. Only the cash is firm, and it is 4.5x, below what a loss-making company with 11% churn was bought for a year earlier.

Valuation football field
Multiple of current ARR
The offerA range, marked at the figure selected
Sources: Crispa analysis. Cohorts and index: SEG 2Q26 SaaS M&A and Public Market Report. Precedents and company figures: Crispa Valuation Insights database.

Two routes and a method, within a third of a turn

Two independent routes and a third method land within a third of a turn of each other, and every step of each is a method rather than an opinion. The floor is one deal: a loss-making company with 11% churn, bought a year earlier at 4.80x. Moving to the median of four control deals takes it to 5.45x.

A 1.25x quality uplift for clearing the Rule of 40 lands at 6.81x. It is the one judgment call in the method, and it is shown rather than buried. The listed cohort clearing the same mark trades at 7.3x.

The forward year puts that 6.81x on next year’s revenue, and the win-rate-weighted pipeline behind the budget covers the gap 2.1 times. That is where the ceiling comes from, and what was asked stops under it, at 8.5x.

Nothing in the product or the customer base moved between the offer and the counter. What moved was which comparables the buyer was allowed to anchor on.

Recurring revenue since inception
Indexed to 100 at the first observation
Sales efficiency by period
Net new recurring revenue per unit of sales spend
The Rule of 40
Growth rate plus profit margin, against the 40 mark
Clear on every basis. The SEG cohort passing the Rule of 40 trades at 7.3x revenue against a 3.2x index median.
The one metric pointing the wrong way
Retention over a year, %
Customers stay; accounts are not grown. Un-monetized expansion, not a broken product, and the buyer collects it after closing.

A headline is a number; an offer is a schedule

Two-thirds cash and an earnout on a budget the buyer controls is a 5.75x offer wearing a 7.6x label. Price the schedule before you price the company, and settle the earnout metric before you spend against it.

Retention below the 100% line went in front of the buyer as an opportunity, not something that should lead to a discount.

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We can help you line up your numbers so they present themselves from their best angle, and help you spot and mitigate the weaknesses before a buyer uncovers them in due diligence. Always anchored in solid analysis and deeply researched market insights.

Related reading: why M&A multiples are often below trading multiples, and The value-creating finance function.

Frequently asked questions

How should I value an earnout in an acquisition offer?
Discount the earnout for the odds of hitting the budget and for the years of waiting. In this case that took a 6.7–7.6x headline down about a quarter, to 5.75x. Only the cash is firm.
How does the Rule of 40 affect an exit valuation?
The SEG cohort passing the Rule of 40 trades at 7.3x revenue against a 3.2x index median. In this case a 1.25x quality uplift for clearing the Rule of 40 lifted the control-deal median from 5.45x to 6.81x.
How do I respond to an acquisition offer?
A headline is a number; an offer is a schedule. Price the schedule before you price the company, and settle the earnout metric before you spend against it.
Is net revenue retention below 100% a reason for a discount?
Not necessarily. Here, customers stay but accounts are not grown: un-monetized expansion, not a broken product, and the buyer collects it after closing. Retention below the 100% line went in front of the buyer as an opportunity, not something that should lead to a discount.

Sources

Originally published in Pre-Money, Issue 01 (Crispa, 2026), p. 14. Figures are as reported at the date given with each chart; medians describe a market, not any one company, and nothing here is advice on the price of yours.

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