SaaS Acquisition Due Diligence: A Worked Example

This is a worked example on a B2B vertical software target. It is a companion to the SaaS due diligence checklist: the checklist tells you what to check, this shows what it looks like when the numbers do not agree with the story.

Finding 1: ARR padded with one-time services

The CIM led with annual recurring revenue as the headline. The number was real. What it quietly included was one-time implementation and services work, billed once, not contracted to repeat. Strip those out and the recurring base is materially smaller than the number the multiple was being applied to. "ARR" is not a regulated term, so a seller can fold in whatever revenue they like and still say the word. The job is to make the ARR bridge tie to a contracted, recurring base, line by line.

Finding 2: 17% concentration against a "no customer over 10%" claim

The narrative said no customer was more than 10% of revenue. The revenue-by-customer schedule showed a single logo at 17%. Concentration is not automatically a dealbreaker, a sticky, contracted account is a different risk than a project-based one, but the gap between the claim and the schedule is the tell. Check whether that logo is on a signed, renewing contract and when it expires.

Finding 3: EBITDA inflated by capitalized R&D

Part of the margin strength came from capitalizing development costs, moving engineering spend off the income statement and onto the balance sheet, where it does not weigh on profit. Capitalizing R&D can be legitimate, but when a buyer pays a multiple of EBITDA, aggressive capitalization inflates the exact number the price is built on. Normalize sustaining development as the operating expense it functionally is, rerun the margin, and see how much of the profitability was real.

The pattern

The financials were not wrong. They were framed. Diligence is the work of unframing them. Explore this exact worked example, every figure traced to its source page, in the sandbox.

Frequently asked questions

How do you verify ARR in diligence? Separate contracted, recurring revenue from one-time services, and make the ARR bridge (beginning, plus new, plus expansion, minus churn) tie to both the ending ARR and the revenue schedule. If the bridge and the financials disagree, one is wrong.

What is a healthy customer concentration for SaaS? There is no single number. What matters is whether the top logos are on signed, renewing contracts with real switching costs, and whether the concentration matches what the narrative claims. A contradiction between the two is the flag.

Does capitalized R&D inflate EBITDA? It can. Capitalizing development moves cost off the income statement, which lifts EBITDA, the number a buyer often pays a multiple of. Normalize sustaining development as an operating expense and recheck the margin. See SDE vs EBITDA.

See the cited, cite-or-cut diligence approach at Deal OS.