Product-led growth (PLG) has become a favored strategy for software companies, particularly in SaaS, as it allows the product to spearhead user acquisition, engagement, and retention. However, when considering PLG companies in M&A transactions, strategic buyers and investors need to dig deeper than the surface-level metrics to uncover long-term growth potential and evaluate risks effectively.

The Appeal of PLG in M&A

PLG models rely on minimal marketing overheads, leveraging the product’s capabilities to drive organic growth. Viral adoption and strong word-of-mouth recommendations indicate a high level of user engagement—a significant value driver for acquirers. Companies like Atlassian have excelled by implementing scalable PLG models, achieving negative net churn through sophisticated upselling and cross-selling strategies​​.In a PLG company, the metrics that matter to buyers include customer acquisition cost (CAC), net revenue retention (NRR), and the extent to which the user base drives growth without significant incremental investments in sales and marketing. These factors translate into higher multiples during valuation​​.

Pitfalls to Avoid

Despite its strengths, PLG can become a double-edged sword. The self-service model often leads to price ceilings, where users cap out on subscription tiers with limited upsell opportunities. Companies that fail to diversify their offerings or expand to enterprise-level services may stagnate in growth​​.
Retention becomes a critical challenge for PLG businesses. A high churn rate erodes value, especially when MRR declines post-acquisition. Buyers must evaluate the company’s ability to continually upsell users or cross-sell complementary products. Without a robust strategy for reducing churn or expanding the revenue per user, PLG models may lose their shine​.

Preparing for M&A

For founders of product-led growth (PLG) companies preparing for M&A, the key to maximizing value lies in demonstrating scalability, retention strength, and strategic vision. Highlight how your product can grow with customers through upsell and cross-sell strategies, enterprise offerings, or market expansion, while showcasing metrics like net revenue retention (NRR) and customer satisfaction to prove long-term viability. Strengthen your retention strategies, reduce churn, and emphasize customer lifetime value through advanced engagement initiatives. Articulate a bold vision for future growth, backed by a roadmap for enterprise adoption or new market entry. Use data-driven storytelling, supported by customer testimonials and case studies, to illustrate the strength and impact of your product. Finally, address any industry-specific challenges by demonstrating effective go-to-market efforts to overcome adoption friction, positioning your business as a scalable, high-value opportunity for buyers.