Vertical SaaS 338(h)(10) Elections: An Independent Sponsor's Counsel
Structuring 338(h)(10) Elections on vertical SaaS deals, with the structure protection and capital connectivity an independent sponsor actually needs.
Vertical SaaS deals in the lower middle market run a specific playbook. 338(h)(10) Elections is where the structure either holds or starts to leak.
The typical vertical SaaS platform sits at $10M to $200M EV with EBITDA in the $2M to $30M (or run-rate ARR) range. The thesis runs on platform plus adjacent module acquisitions inside a single end-market. The ARR number on the CIM is rarely the ARR number on the closing balance sheet. Reconcile early.
How 338(h)(10) Elections actually gets structured.
Run a side-by-side tax model showing the seller's grossed-up purchase price requirement.
Document the election in the purchase agreement, with required IRS forms attached.
Confirm the seller's eligibility, including the consolidated group structure.
Plan the tax gross-up payment, often funded out of the buyer's price.
In vertical SaaS, layer in ARR bridge built before LOI signing as part of the 338(h)(10) Elections workstream.
Demanding a 338(h)(10) without offering the seller a tax gross-up. The election only works if the math works for the seller too.
"338(h)(10) is a buyer benefit you have to pay for. Price it into the LOI, not the surprise column."Jason Powell · 338(h)(10) Elections
The deal is one thing. The capital that opens up after close is another.
After close, the call list for refinancing, recapitalization, and growth equity gets short and known. Jason carries that list.
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338(h)(10) Elections for Vertical SaaS, on independent sponsor terms.
Independent sponsor counsel that already speaks fluent deal-by-deal economics, structures clean LPAs, and travels with capital markets relationships for what comes after close.