The SaaS acquisition landscape is undergoing a quiet revolution. While equity funding has long been the golden standard for growth and acquisitions, non-equity funding models are rapidly gaining momentum, offering companies flexibility and control that traditional equity doesn’t provide. This shift is particularly pronounced in the SaaS and IT services sectors, where predictable revenue streams make debt financing increasingly attractive. Growth Lending’s recent support for Stronger Business Partners exemplifies this trend, showcasing how alternative funding models are enabling strategic acquisitions without diluting ownership. The implications? More nimble M&A strategies, accelerated growth timelines, and a fundamental rethinking of how tech companies finance their expansion plans.
The Rise of Non-Equity Funding in Tech M&A
The tech acquisition playbook is evolving. While venture capital and private equity have dominated the funding landscape for decades, debt facilities and other non-equity instruments are gaining significant traction. This shift reflects a maturing market where predictable revenue models create new financing possibilities.
The numbers tell the story: debt-funded acquisitions in the SaaS space have increased by over 40% in the past three years. Why? Because SaaS business models, with their recurring revenue streams, subscription economics, and high gross margins, align perfectly with what lenders want to see.
Case in point: Comvest Credit Partners recently provided a senior secured credit facility to Billhighway, a company specializing in finance management technology solutions for fraternal organizations. This facility wasn’t just for operational expenses—it specifically funded the acquisition of ChapterSpot, a complementary CRM solution provider that enhanced Billhighway’s service offering.
Debt Facilities: The New M&A Growth Engine
Debt facilities come in various forms, each with distinct advantages for tech companies pursuing acquisitions:
- Term Loans: Fixed-amount loans with scheduled repayments, often used for specific acquisitions
- Revolving Credit Facilities: Flexible credit lines companies can draw from as needed
- Revenue-Based Financing: Repayments that scale with the company’s monthly revenue
- Venture Debt: Hybrid instruments that may include equity components but primarily function as debt
These facilities are reshaping M&A strategies in several ways:
Accelerating Acquisition Timelines
Debt facilities typically have faster closing processes than equity rounds. When The KEYW Holding Corp. secured a $135 million term loan, they were able to move on acquisition opportunities with a speed that would have been impossible with traditional equity fundraising.
Preserving Founder Control
For founders and early investors, non-equity funding prevents ownership dilution. This preservation of control is particularly valuable in founder-led SaaS companies where maintaining vision and culture is crucial.
Creating Financial Flexibility
Modern debt facilities often come with fewer restrictive covenants than in the past. This gives SaaS companies room to maneuver after acquisitions, allowing for integration periods without immediate pressure to hit aggressive growth targets.
SaaS Acquisitions: A Perfect Match for Debt Funding
The SaaS business model has unique characteristics that make it particularly suitable for debt funding:
| SaaS Characteristic | Why Lenders Love It |
| Recurring Revenue | Predictable cash flows reduce lending risk |
| High Gross Margins | Typically 70-80%, creating room for debt service |
| Low Customer Churn | Stable revenue reduces uncertainty in repayment projections |
| Scalable Operations | Incremental revenue comes at minimal additional cost |
These characteristics explain why a company like Alion Science and Technology Corp. could secure $630 million in debt across multiple transactions to fund their expansion and acquisition strategy. Their recurring contracts and predictable revenue streams made them an attractive candidate for lenders.
The Strategic Advantages of Non-Equity M&A Funding
Beyond the obvious benefit of avoiding dilution, non-equity funding offers several strategic advantages for SaaS and IT services companies:
Executing on Buy-and-Build Strategies
Many SaaS platforms are pursuing roll-up strategies where they acquire complementary products to build comprehensive solutions. Debt facilities can be structured specifically to support these strategies.
For example, when a SaaS service provider secured $270 million in senior secured credit facilities, they were able to execute on a series of strategic acquisitions that transformed them from a point solution into a platform. This transformation dramatically increased their valuation multiple from 5x to 9x revenue.
Timing Market Opportunities
With ready access to debt capital, companies can move quickly when acquisition targets become available at attractive valuations. This timing advantage is particularly valuable in consolidating markets.
Creating Tax Efficiencies
Interest payments on debt are generally tax-deductible, creating a more tax-efficient capital structure compared to equity financing. This tax efficiency can significantly reduce the effective cost of capital for acquisitions.
How IT Services Companies Are Leveraging Non-Equity Funding
IT services companies face different challenges than pure SaaS businesses but are equally positioned to benefit from debt-financed acquisitions.
The strategic acquisition of specialized talent and capabilities is often the primary driver. When Dynetics Inc. was acquired by Leidos Holdings for $1.65 billion, debt facilities played a crucial role in making the transaction possible. The acquisition instantly expanded Leidos’ technical capabilities and specialized workforce—assets that would have taken years to build organically.
IT services companies are also using debt facilities to:
- Acquire specialized technical expertise in emerging areas like AI, cloud migration, and cybersecurity
- Expand geographic footprints to serve clients in new markets
- Add complementary service offerings to create end-to-end solutions
The cross-border element is particularly noteworthy. Companies are increasingly using debt facilities to fund international expansions, as evidenced by several $950 million cross-border revolving credit facilities that have enabled IT services firms to acquire capabilities in multiple countries simultaneously.
The Real-World Impact: Growth Lending and Stronger Business Partners
The case of Growth Lending’s support for Stronger Business Partners illustrates how non-equity funding is transforming M&A strategies in practice.
Stronger Business Partners, a business process outsourcing provider, secured debt financing that allowed them to acquire complementary service providers without diluting existing ownership. The debt facility was structured with repayment terms aligned to the company’s projected post-acquisition cash flows, creating a sustainable growth model.
What made this approach particularly effective was the alignment between acquisition targets and existing operations. By acquiring companies with similar client profiles but complementary service offerings, Stronger Business Partners could immediately cross-sell to an expanded client base, accelerating their return on investment.
Challenges and Considerations in Debt-Financed Acquisitions
While non-equity funding offers significant advantages, it’s not without challenges:
Interest Rate Environment
The rising interest rate environment has increased the cost of debt capital. Companies must carefully model how interest expenses will impact post-acquisition economics, especially for deals with longer ROI horizons.
Covenant Restrictions
Debt facilities typically come with covenants that may restrict operational flexibility. These can include limitations on additional borrowing, requirements to maintain certain financial ratios, and restrictions on major business changes without lender approval.
Integration Risk
Unlike equity investors who may be more patient through integration challenges, debt providers expect consistent payments regardless of how smoothly the acquisition integration proceeds. This creates additional pressure to execute integrations effectively.
The debt-equity hybrid: Having your cake and eating it too
The most sophisticated M&A strategies now combine both debt and equity in optimal proportions. This hybrid approach allows companies to benefit from the non-dilutive nature of debt while maintaining sufficient equity cushion to satisfy investor expectations and manage risk.
C. Jordan Myers, a partner at Alston & Bird specializing in secured financing transactions, has facilitated numerous hybrid capital structures. In one example, his team structured a $180 million senior secured credit facility for a take-private acquisition of a restaurant chain, complemented by a smaller equity investment. This approach allowed the acquirer to maintain control while deploying capital efficiently.
Similarly, when Joby Aviation formed a $200 million strategic alliance, they secured a mix of debt facilities and strategic equity investments. This balanced approach gave them the capital needed for growth while also bringing in strategic partners whose expertise was as valuable as their capital.
The future of SaaS and IT services M&A clearly involves more sophisticated capital structures that precisely balance debt and equity to optimize for control, cost of capital, and strategic flexibility. Companies that master this balance will have a significant advantage in competitive acquisition scenarios.
As David S. Cole, a partner at Holland & Knight with experience in over $2 billion in debt capital offerings, notes through his work: the companies that win in today’s acquisition landscape aren’t necessarily the ones with the most cash—they’re the ones with the most creative and efficient capital structures.