Types of Acquirers of Software Companies

The decision to sell your enterprise software company is one of the most impactful business moves you’ll make as a founder, CEO, or owner. But the road doesn’t end at “finding a buyer.” The type of buyer you choose plays a significant role in determining the future trajectory of your company, your team, and even your users.

From their business models to their post-acquisition strategies, acquirers differ significantly, and these differences can have far-reaching implications for the success and legacy of your sale. Largely, there are two major categories of buyers in the Edtech space—Private Equity (PE) buyers and Strategic Investors—but these groups further split into subtypes with varying goals and strategies.

This blog will break down the complexities of these acquirers, explore their approaches to acquisitions, and give you insights on how to make the right choice for your Edtech business.

The Two Major Types of Acquirers 

1. Private Equity (PE) Buyers

Private Equity buyers dominate a significant portion of the acquisition landscape, particularly in the software sector. Usually PE firms target companies with revenues from $10m in revenue and above. For smaller acquisitions of $3m in revenue, PE buyers might acquire through their subsidiaries. These firms are focused on financial returns, often with the aim to resell the acquired company at a higher valuation within a specified timeframe.

What Defines a PE Buyer?

PE buyers share certain characteristics that drive their approach to acquisitions:

• Financially Driven Goals: The primary focus is on maximizing return on investment, often through cost reductions or increased revenue strategies.
• Limited Industry Specialization: Most PE firms span multiple industries, which means their expertise is generally not specific to Edtech but often to SaaS or Services.
• Exit-Oriented Timeline: The standard model for PE buyers involves acquiring a company, making changes to boost profitability, and selling it again in 5–7 years.

 

Types of PE Buyers

Not all PE buyers operate identically. They vary based on their timelines and strategies:

• Short-Term Operatives: These are mostly buy & sell investors, focused on quick changes to optimize profitability, often leading to dramatic adjustments like staff reductions, rebranding, and pricing changes.
• Permanent Hold Funds: These are serial acquirers, often of Vertical Market Software (VMS) companies that aim to acquire and sustain assets indefinitely, offering somewhat more stability. Most of these VMS acquirers buy across many industry verticals, and their operational playbook often relies on more generic SaaS focused improvements (mostly price increases and cost cuts), seldom do they have the deep industry expertise to create synergies or otherwise assist the business with market specific improvements.
• Search funds: These are typically led by solo operators who have received soft commitments from prospective investors—capital that will be deployed only if the investors approve the specific acquisition. While the operator may be dedicated and motivated, the risks include uncertainty around actual funding at closing and, in some cases, limited hands-on operating experience.
  

Common Post-Sale Changes by PE Buyers

• Cost Cutting: Reducing operational expenses to improve profit margins.
• Price increases: Relying on the difficulty of customers to migrate, buyers often increase prices dramatically.
• Rebranding and Name Changes: Updating the brand to prepare it for resale.
• Staff Restructuring: Often drastic, impacting morale and operational stability.
• Generic Optimization: Improving features that apply broadly across industries rather than focusing on Edtech-specific enhancements.

While these changes can position the business for a higher valuation, founders and employees may find the transition jarring and impersonal.

2. Strategic Investors

Strategic investors approach acquisitions with a very different mindset. Their goals revolve around industry-specific synergies, long-term value creation, and enhancing their positioning in the Edtech market.

 What Defines a Strategic Investor?

Strategic buyers are typically well-established organizations within a specific sector. Their focus is on how the acquisition can provide holistic value to their own ecosystem, making them highly relevant for vertically focused SaaS companies. At Continuum, almost all our acquisitions occur as part of strategic acquisitions within our vertically focused groups such as IFG that serves banks or Campus Connect (www.campusconnectgroup.com) that serves Institutions in the higher education industry.

• Industry Specific Focus: Strategic investors evaluate how your product or service will complement their existing educational offerings.
• Long-Term Vision: Their investment horizon is often indefinite, with no pressure to sell within a few years.
• Value-Driven Changes: Post-sale improvements are geared toward industry-specific enhancements rather than blanket cost-cutting.
• Rebranding: Many strategic acquirers often rebrand the acquired business and their products into a common brand with their current assets. We, at Continuum prefer to operate each business we acquire independently, in order to maintain the company’s focus on its own clients and customer segment and its entrepreneurial spirit.

Synergy in Action

Strategic acquirers are much better positioned to benefit both, the acquiring organization and the acquired business with synergistic effects. While some PE buyers may assist by consolidating admin functions, strategic acquirers often can provide access to captive clients. One example of strategic synergy at one of our vertically focused groups Campus Connect is integrating multiple Edtech solutions to enhance the user experience. For instance, we have interfaced a student information system with an integrated financial aid solution, streamlining processes for schools and creating a unified experience for their clients, while still operating each company independently.

Why Founders Favor Strategic Buyers

• Relevant Expertise: Strategic acquirers often have a deep understanding of the education lifecycle, which allows them to add meaningful value to the acquired business. A survey we conducted about what qualities in a buyer founders appreciate most, the industry specific knowledge was rated highest. Read about our survey here.
• Less Drastic Changes: While strategic buyers may make improvements, these changes are rarely disruptive or aimed at shorter term gains.
• Long-Term Commitment: A permanent investment strategy means your company is viewed as an integral piece of their larger mission, reducing the likelihood of future resale.

Pricing Expectations Across Buyer Types

Pricing dynamics can fluctuate across both PE and strategic buyers. Some PE firms are willing to pay a premium for businesses with strong growth rates and will assume that they can cut costs to reposition the business. Some PE firms with buy-and-sell strategies may pay up based on an anticipated price they will be able to obtain when they flip the business or bundle it with several others. Similarly, strategic buyers may pay higher prices if your business fits seamlessly into their long-term vision, but they may also be limited by budgeting constraints within their core business model.

The best way to approach pricing is to simply engage with the prospective buyer and ask for a valuation. It also is adviseable to evaluate offers beyond dollar figures. While PE firms may provide a tempting upfront valuation, founders must weigh the potential reputation and operational risks. Conversely, while strategic deals may offer reliability, they require alignment with your company’s vision and goals.

 

Tips for Choosing the Right Buyer

1. Talk to Other Founders

Nobody knows the buyer better than someone who has already sold their company to them. Insist on connecting with past sellers, ideally speak to some that have sold and are no longer in the business to assess how the buyer handled the transaction and also talk to sellers that remain in the business about their post-sale experience.

2. Evaluate Cultural Fit

A strong cultural alignment with the buyer ensures smoother transitions for employees and better morale during integration.

3. Understand Their Goals

Before committing to a sale, ensure you understand the buyer’s intentions for your company—both short-term and long-term.

 

Building a Legacy Through the Right Sale

Your software company isn’t just a business; it’s a vision you’ve nurtured, a team you’ve led, and a mission that impacts the lives of educators and students alike. Choosing the right acquirer isn’t simply about dollars and cents, but about ensuring that legacy continues, thrives, and grows.

At Continuum, we’re committed to transparency, collaboration, and creating long-term value for every partner we work with. If you’re considering selling your software company, we invite you to reach out to our team. Not only will we guide you through the process, but we also encourage you to speak directly with the founders of our portfolio companies to hear about their firsthand experience. Your legacy deserves nothing less than the perfect match.