Inside Tech Private Equity: What Makes an "A" Asset?

At this year’s SaaS Palooza event, Jennifer Smith (Partner, Bain & Company) and Katherine Zhang (CEO, OPEXEngine), explored what sets top-performing SaaS companies apart in today’s tech private equity market. From emerging deal trends to how investors define an “A” software asset, their discussion offered actionable insights for SaaS operators and investors alike.

We’re excited to make this live session available as a special podcast episode! Drawing on OPEXEngine’s proprietary benchmarking data and Bain’s deep expertise in tech investing, Jennifer and Katherine dive into the evolving dynamics of deal flow, valuation trends, and the balance of growth and profitability that define leading SaaS businesses.

Whether you’re preparing for a sale, raising capital, or benchmarking performance, this episode delivers clear takeaways on building sustainable value and driving operational excellence.

The full video recording is available here. You can also download the presentation slides here.

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Transcript

Host (Avery Ponce): Welcome to SaaS Conversations, a podcast from OPEXEngine by Bain & Company, where we explore the strategies behind operational excellence in SaaS. In today's episode, we're sharing a special recording from our live session at SaaS Palooza in October of 2025, titled “Inside Tech Private Equity: What Makes an ‘A’ Asset?”

The session is led by Jennifer Smith, Partner at Bain & Company, and Katherine Zhang, CEO of OPEXEngine. They explore what sets top-performing SaaS companies apart in today's tech PE market — from emerging deal trends to what truly defines an “A” asset in the eyes of investors.

During the presentation, they reference a few charts that are available for download on our website, opexengine.com.

Whether you're an operator or investor, this conversation is filled with actionable takeaways on how to position your company for long-term value creation.

Let's listen in.

Jennifer Smith: I’m really delighted to be back here with everybody this year. So we've got two topics we're going to talk through today that are closely related. First, similar to what we talked about last year, I'm going to give you a bit of a fly-by on the latest in tech private equity investing and what we're seeing in terms of trends in the deal markets and what investors are looking for.

Then, we'll spend the second half talking a little bit more about that last question, which is: what are the top software companies that are getting traded at the highest multiples? What do they look like? What does “good” look like? What makes an A asset vs. a B or a C asset? And we'll talk a little bit about some of the proprietary data we have at OPEXEngine to help make sense of that as well.

So let's get into it. Katherine, you can go to the first slide. I'll just give you a quick overview of what's been happening. We, at Bain, have lots of different data sources that track what's going on in private equity deal markets. We see tons and tons of deals across our desk. The first thing that I wanted to just highlight is that tech overall continues to be a big part of the overall private equity investing landscape.

It tends to trend about 20% — give or take — of deal activity. On the left-hand side of this chart, you can see deal volume over the last few years, and on the right-hand side, it's the quarterly view. Basically: tech has been around 20% of overall deal volume. Then, when we looked at the last few quarters, it's risen back above 20%. Part of that is due to overall PE declines over the past couple years and tech holding steady — but also renewed interest in tech as a sector.

Katherine, if you go to the next slide — this is a double click on tech-specific data. Looking at only tech deals being done in North America, overall deal volume is expected to increase. 2021 was a high watermark for tech PE activity — the highest we’ve ever seen. Since then, deal volume declined due to macro conditions: higher borrowing costs, inflation concerns, and interest rates. But since the back half of 2024 going into 2025, deal volume is ticking back up. 2024 hit just above a thousand deals, and 2025 looks set to finish even higher.

By no means are we back to 2021 highs, but it’s business as usual compared to pre-2020. LBO volumes remain somewhat suppressed, with more minority deals and add-ons driving activity. IPO and corporate M&A momentum is also returning, with both 2024 and 2025 trending upward. A lot of this renewed confidence stems from excitement around AI, automation, and general optimism in tech investing.

A few other checks and things we look at: one is IPOs. Again, seeing some positive momentum on IPOs coming into 2025. Then on the right-hand side, corporate M&A – another thing we track. 2024 was a bit higher than 2023, and 2025 is expected to be a little bit above 2024 as well.

So again, things are on the up. A lot of that we think is driven by excitement around AI and other automation technologies and generally feeling more confidence and comfort in tech investing as a whole.

So a few other things underpinning this. If we start on the left-hand side here, the average deal value (so not just volume and number of deals, but looking at the value of those deals) is roughly holding steady or at least ticking back up — and that's across all types of deals; we look at LBOs, buyouts, minority deals, add-ons, recap. So if you look at the dotted yellow, that's the overall bar ticking back up and holding steady again to those pre-2021 levels.

What's interesting though, in the middle — and this is the point I was making on the prior page — the actual percent that's buyout (true sort of leveraged buyout) is declining. And what you're seeing is that a lot of what's driving deal activity is an increase in minority deals and an increase in add-on deals — tech investors taking a platform approach, buying one company, and then adding on a bunch of software companies to it. I think there's a lot of reasons why that thesis has been attractive, but one of the reasons is that in a world where it's been harder to borrow money, it's much easier to find the capital to do a smaller deal, a minority deal, or an add-on versus a full LBO. And on the right-hand side, we look at the types of deals that are being done. It continues to be heavily weighted toward horizontal and vertical software. Infrastructure — things like cybersecurity and data infrastructure — remains attractive, particularly for tech specialist investors, but it’s a smaller percentage compared to vertical and horizontal software.

So why are we seeing this uptick? One: there are a lot of aging assets sitting in PE investors' portfolios, so there's a real need to return money and return liquidity to their LP investors.

If you look at the left-hand side of this page, this is showing the age of tech companies in PE portfolios. The red bars are basically companies that have been held for more than four years. As we know, most PE investors would like to exit in three to five years, so there's quite a lot of tech assets that really need to be sold or, at least, need to have some sort of deal to return money to their LPs.

We're seeing not only sales of those companies, but also some creative deal structures — secondaries and things like that. Minority partial sales where you may sell 35% of the equity to another PE sponsor to hit a mark and show your LPs the company is doing well and return some money while not selling the full company outright. That's a theme we're seeing. Regardless, there's a real need to return money and get some of these aging assets out of the portfolio.

When you compare that to the right-hand side — this is basically looking at how much dry powder there is out in the market — it's coming down a little bit, but there's still a massive amount of dry powder out there and investors who really want to put money to work. So all of this comes together and creates pressure to sell PE-owned companies to generate liquidity and really demonstrate a high performance level to your LPs so that you can raise money and continue to increase the amount of dry powder in your funds.

We can go to the next page. I think when I was talking to you all last year, we were predicting even more of a resurgence than we've seen in tech investing. It is definitely recovering and growing slowly, but probably not the watershed increase that we may have expected.

There are a couple reasons for that. One is we think there's still a bit of a gap between expectations on buyers and sellers. You see this chart showing revenue multiples. One thing: tech companies are valued higher than non-tech companies — probably no surprise. But also, you see that valuations have largely held steady with a little bit of an increase.

That, combined with the fact that buyers would like to see valuations decline, sellers would like to see valuations increase, and there's still a little bit of a gap. We do think that gap is continuing to narrow and has been over the last 18 months. But then there are things like inflation and interest rates remaining high. We're actually seeing, at Bain, a big uptick in deal activity pre-May this year, and we thought that was a signal that the rest of the year was going to see a massive increase. Then some of the tariff uncertainties that came about started to dampen that.

Then, while AI is exciting and causing folks to put a lot of money into the market, it has also tempered overall, and I think there's still a lot of people who feel like AI is in the early innings and hasn't really hit the major acceleration that we expected to see.

So, I'd say overall, signs are positive and continue to moderately increase, and tech continues to be a big part of private equity investing as a whole. We're going to spend the last part of this talking about what drives high valuations and what truly makes an “A” asset.

Just as background, this is looking at some of the biggest deals that have happened thus far and what those multiples are. These are still attractive and high revenue multiples, but they are within a relatively narrow band. I think there's probably more of a range if you look at the EBITDA multiples.

There are a few outliers where you're getting 10x and above, but most are in the range of four to eight. And I think the top-performing assets we expect to trade in the 8–10x range.

If you go to the next page, one other point I wanted to make on valuations before we get into some of the qualitative things around what makes an “A” asset is: there is a continuing view that valuations are rewarding a balanced Rule of 40 — a balance of growth and profitability.

It used to be in 2020–2021 that it was all growth-focused. You got the highest valuations based on the highest growth companies. That has changed and continues to change. Investors are looking for a balanced mix of growth and profitability.

I won't get into this chart because it's quite detailed, but effectively this is looking at valuations based on revenue growth on the left-hand side, EBITDA margins in the middle, and then Rule of 40 on the right. You can basically see: Rule of 40 — the balance between growth and profitability — is where you're getting the highest rewards in terms of valuation.

I think that overall, revenue growth is probably still overweight versus profitability, but a company that's growing 40% and not making any money is, on the whole, going to be valued less than a company that might be growing 30% and making 10% profit margins. That’s the rule of thumb.

Let’s talk a little bit about what makes an “A” asset, and I'm going to invite my colleague Katherine to chime in, who runs OPEXEngine. But a few points from my perspective: I've already said that the balance between growth and profitability is really important.

We get the question all the time at Bain: how do I make my asset an “A” asset or an “A+” asset? We were joking, but the perfect SaaS company probably does not exist. I don't know that I've seen any company that checks every box, but to give you some sense of the scorecard we’d be looking at — if there were a company that could fill every one of these boxes, that truly is an “A” company. It's having a winning market position — things like highly differentiated customer feedback, clear market leadership, and really no threat from new entrants — and having a super clear moat (proprietary data, a super sticky solution, limited threat from platform players, etc.). That left-hand side is winning market position, strong competitive position, and customer feedback.

The middle would be a clear ability to continue to drive growth, whether that's riding an adoption curve, expanding with your existing customers, having a real engine to drive new customers (net-new to the market or competitive takeouts), and true visibility into the next stage of growth.

And then actually having profit. On the right-hand side is all about how you drive profit and operational excellence — while continuing to drive top-line growth. There’s a lot that underlies that, and Katherine will get into some of those metrics now. Katherine, anything you’d add as an overlay?

Katherine Zhang: On the right-hand side, in terms of operational excellence (which is really what we look at at OPEXEngine), if you have the market position and even an amazing growth story, you still need that third part. Jen went into this a bit, but when you talk about Rule of 40 — if you want to be the A+ asset, you really want Rule of 60. You have to balance growth and profit.

You can't just be growing to get to Rule of 60. Investors want to see, much like in the growth story, that there is a clear path for value creation. And then they want to know that you're scalable. They're not buying you for the company that you are now; they're buying you for the company that you can be. You need to show that your operations are efficient and cost-effective and can take you to the next stage.

In the following slides, we're going to use some of OPEXEngine's proprietary data to show what these bullets we wrote in words look like in actual numbers.

We are going to look at what an average acquired company looks like. This is not an “A” asset, not necessarily an “A+” asset. We took our database and built a set of companies that we tracked at least two years before they were acquired or IPO’d — a successful exit of some kind.

We looked at what they did, and specifically, in terms of the components of Rule of 40, what they did. The first thing we found was interesting and a little surprising but made sense when we thought about it: ARR growth stays steady — it doesn't necessarily have to jump before a company is acquired. On this chart, the left-hand bar is growth two years before exit; the right-hand bar is growth one year before exit. You can see that with these companies, their growth is about the same. They're not shooting up from 26% to 50%. They're also just a little bit above market — that red line is the median of all the other companies who didn't get acquired.

What this told us is that investors aren't necessarily looking for you to do a lot of things to juice your top line before they view you as an acquisition target. This again points to operational excellence being important. And to bolster that insight even more: when you look at the bottom line, that does need to improve. That last chart said, “ARR growth stays steady before you exit.” EBITDA margin has to markedly improve before exit.

We see companies going from negative profitability (like -22%) to roughly break-even the year before they're acquired. When we dig into this, usually they're cutting things around sales and marketing expense. Again, that makes sense — you have to maintain your growth, but you should be getting more leverage from your sales and marketing spending. That’s one way they improve margins.

Now let's dig into this idea of what an “A” company is. We talked about Rule of 40 (the sum of your EBITDA margin and your growth rate). We did say that an “A+” company needs to be at Rule of 60.

To be an “A” company, Rule of 40 is still a good benchmark. So with our data here, we looked at companies that made it to Rule of 40 and took their median growth rate (orange) and median margin (blue). What’s interesting is that when you look at the components of Rule of 40, that margin part — the blue bar — gets increasingly important as you get larger.

Again, as Jen mentioned, it’s not only size — the market itself is changing. That blue bar (EBITDA margin) is becoming a more important input to how you get to Rule of 40. So, how do you get to Rule of 40? You need an efficient cost structure.

We did one more double click into this data and looked at the cost structures of Rule of 40 companies compared to everyone else. The left-hand bars are Rule of 40 companies; the right-hand bars are everyone else. This is median spending in Sales & Marketing, R&D, and G&A, and — similar to the last slide — it’s across cohorts by size.

A couple of things stand out: first, the gap between Rule of 40 companies and everyone else widens as you get larger. If you're below $50M, your total cost structure is better than everyone else if you’re at Rule of 40 — but not by a huge margin. By $250M and above, that gap becomes much wider.

Second: G&A as a % of revenue settles down early in the growth cycle. G&A hovers between ~10–15% by the time you get to $50M and stays there. It might get a little lower as you grow, but it’s not a huge lever for margin improvement.

The leverage really comes from getting scale and efficiencies out of Sales & Marketing — and a bit out of R&D. That’s a small example of how companies achieve operational excellence at different growth stages.

And I think that’s everything we wanted to share today. I'm going to wrap up with key takeaways and pass it back to Jen for two or three things she wants to leave listeners with.

Jennifer Smith: From my perspective, taking both parts of this presentation together: if you are trying to sell your company or attract PE investors, it’s not growth at all costs. It’s growth plus operational excellence that really matters and truly drives the highest valuation for your business.

Second, from an investor landscape perspective, tech remains a very attractive place to put money. It continues to be the largest sector for investment. We are seeing moderate growth, not back to 2021 levels, but improving.

We expect that moderate recovery to continue over the next couple of years.

Katherine Zhang: Following on the point about growth and margins: unlike a couple of years ago, it's not just external market factors that lift your top line that investors will look at. Increasingly, it’s your internal operations. They’ll dig into operational excellence to evaluate whether you are an “A” asset — focusing on sustainability and efficiency across every part of the organization.

Avery Ponce (Host): That was Jennifer Smith and Katherine Zhang at SaaS Palooza. Following their discussion, there's a brief Q&A session with event host Ray Rike, where they address audience questions and share additional insights from the session. You can find the full recording, including the Q&A and the presentation slides, on our website: opexengine.com.

Thank you for listening to SaaS Conversations from OPEXEngine by Bain & Company. We'll see you next time.

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