Diligence can spot the delivery discount.
It can't fix it.
Published
Most software owners prepping for a sale do the standard cosmetic cleanup: cap professional services on the P&L and present a "clean" SaaS revenue mix.
Sophisticated buyers don't buy it.
They look past the revenue mix to R&D spend, ARR per head, and release cadence. When they see bloated engineering costs and quarterly releases, they price the business for what it actually is: a services shop hiding inside the R&D line.
Financial cleanups only tidy the custom work you billed for. Diligence finds the decade of custom client work you absorbed into the core product—and discounts the multiple accordingly.
Why you can’t fix it in the data room
A diligence report can describe this problem in two weeks, but you cannot repair it during a live deal.
Buyers pay a software multiple for separability—knowing that custom client work lives outside the core product on its own margin, rather than dragging down R&D. Building that separation takes clear decision rights, leaders who won't fold under sales pressure, and enough runway for the fix to show up in your gross margin.
A transaction process has none of the three.
If you want a software multiple at exit, the test isn't how clean your P&L looks today. It’s what happens tomorrow when a major customer demands a one-off feature to sign: who owns the boundary, and does your commercial team already know the answer?
You don't close the valuation gap in the data room.
You close it 24 months before it opens.
First published on LinkedIn on 3 November 2026. The original post.
The full mechanism — how absorbed custom work prices as a services business, and how the shape is resolved — is in the report →
Where this note leads: the papers behind it, in reading order.