M&A in the Tech Industry: What SaaS Companies Need to Know Before a Deal

Jul 16

Legal Considerations That Can Make or Break the Transaction

Mergers and acquisitions (M&A) are a common pathway to growth and liquidity in the technology sector. For SaaS companies, whether you're the buyer, the seller, or entering into a strategic merger, M&A can offer access to new markets, expanded customer bases, and product synergies.

But with opportunity comes risk. From intellectual property rights to contract compliance, SaaS companies must carefully prepare for M&A—because buyers and investors will scrutinize every aspect of your legal foundation. One overlooked agreement, data privacy misstep, or ownership ambiguity can delay or derail a deal entirely.

At Apex Legal, we help SaaS companies on both sides of M&A transactions understand the legal landscape and prepare for a smooth, successful process. Below, we explore the legal issues you need to consider before moving forward with a merger or acquisition.

1. Entity Structure and Corporate Governance

Before any deal can proceed, the acquiring party will examine how your company is structured and governed. Key issues include:

Is your business entity properly formed and in good standing?
Are your corporate records up to date?
Have you issued equity correctly and documented ownership accurately?
Do you have clean, signed board resolutions and meeting minutes?

Buyers want to avoid acquiring legal or administrative problems. If your cap table is messy or your shareholder rights are unclear, this can raise red flags during due diligence.

What to do: Conduct a corporate cleanup early. Ensure your entity is properly formed (typically as a Delaware C-Corp for acquisition readiness), equity is correctly issued, and all organizational documents are in place.

2. Intellectual Property Ownership and Protection

Your software, codebase, trademarks, and proprietary technology are likely the most valuable parts of your business. But if you can’t clearly prove that your company owns them, the deal could fall apart.

Common issues include:

IP developed by contractors without written assignment agreements
Use of open-source code with restrictive licenses
Lack of formal trademark or patent registrations
Disputes over who owns jointly developed technology

What to do: Make sure all founders, employees, and contractors have signed IP assignment agreements. Conduct an internal IP audit to verify ownership, licensing obligations, and registration status.

3. Customer and Vendor Contracts

The acquiring company will review your commercial agreements to understand your revenue streams and legal obligations. They’ll want to know:

Are your customer agreements assignable in an M&A event?
Do you have auto-renewals or early termination clauses?
Are there any change-of-control restrictions that require customer consent?
Are your SaaS terms enforceable and compliant with applicable laws?

They’ll also look at vendor relationships—especially with key infrastructure providers like AWS, payment processors, or CRM tools—to assess any third-party risks.

What to do: Review your contracts for anti-assignment and change-of-control provisions. Standardize and strengthen your terms of service and master subscription agreements (MSAs) if needed.

4. Data Privacy and Security Compliance

If you handle personal data or operate internationally, compliance with data protection laws like GDPR, CCPA, or HIPAA will be a core focus of M&A due diligence.

Buyers will want to know:

Have you implemented proper security protocols?
Are your privacy policies current and accurate?
Do you have data processing agreements (DPAs) in place?
Have you suffered any data breaches?

Noncompliance could lead to regulatory fines—and post-acquisition liability for the buyer.

What to do: Conduct a privacy compliance audit. Ensure your policies reflect your actual data practices and that your systems meet industry standards for security.

5. Employment and Contractor Agreements

Buyers will evaluate your team and employment structure to identify potential risks and assess retention strategies. Legal issues can include:

Misclassified contractors
Unenforceable or missing employment agreements
Missing IP or confidentiality provisions in offer letters
Equity grant documentation inconsistencies

What to do: Confirm that all personnel have signed enforceable employment or contractor agreements with appropriate IP, confidentiality, and termination clauses. Ensure proper worker classification and wage compliance under U.S. and state law.

6. Litigation and Risk Exposure

Pending or past legal claims can significantly impact valuation or delay a deal. Buyers want to understand what legal risks they’re inheriting.

They’ll ask:

Are you involved in any active litigation?
Do you have unresolved IP disputes or customer complaints?
Are there regulatory investigations or compliance concerns?

What to do: Disclose any claims honestly and be prepared to show mitigation strategies or settlements. Secure appropriate insurance coverage and work with legal counsel to assess any ongoing risk.

7. Financial Compliance and Revenue Recognition

While your financial advisors will lead the valuation and audit process, legal counsel will play a key role in ensuring revenue recognition aligns with contract terms, especially for SaaS models that rely on recurring billing.

Do your contracts support recognized revenue timing?
Are deferred revenues appropriately documented?
Are customer commitments enforceable?

What to do: Coordinate with your accounting team to ensure that contract terms, billing cycles, and revenue recognition are aligned—and properly documented.

8. Deal Structure and Legal Negotiations

Every M&A transaction is different. The structure—asset sale, stock sale, or merger—has significant legal and tax implications. You'll also need to negotiate:

Purchase price and payment terms
Representations and warranties
Indemnification obligations
Escrow and holdback periods
Post-closing employment or earn-outs

These are heavily negotiated terms, and you’ll need experienced legal counsel to advocate for your interests.

What to do: Engage legal advisors early to review the deal structure and draft or negotiate the transaction documents. Consider how the deal terms align with your strategic and financial goals.

How Apex Legal Supports SaaS Companies in M&A

Whether you’re preparing for acquisition, merging with a competitor, or acquiring a complementary technology, Apex Legal provides end-to-end M&A support tailored for tech companies.

We help you:

Conduct legal readiness audits
Clean up your cap table and governance
Strengthen your IP and contract frameworks
Prepare for due diligence
Negotiate deal terms and closing documents
Protect your interests during post-closing integration

With experience in software licensing, regulatory compliance, and strategic transactions, we bring a practical, business-minded approach to M&A—because legal work should drive deals forward, not slow them down.

Thinking about a sale or merger? Let’s talk. Apex Legal can help you prepare for M&A from day one, so you’re ready when the opportunity arises.

Ony Okoro