Not all growth is created equal. In M&A, headline growth can look strikingly similar across companies. But the source of that growth isn’t always the same. Some companies are like Jekyll: scaling at a sustainable and steady pace. Others are like Hyde: dressing up the numbers for a quick sale.
Both may be technically legal, but only one will survive post-close. For buyers, the challenge is digging into overlooked data to find red flags before the ink dries. For sellers, it’s getting ahead of its trouble spots before it loses value under scrutiny. For both, facing the full story, however messy, is where the real value lives.
Jekyll makes the pitch, Hyde sets the price
On paper, a rising SaaS database company looked perfect: double-digit revenue growth, a clean balance sheet, and a clear-cut go-to-market strategy.
The client, a fund with more than $40 billion in managed assets, expected the SaaS company to deliver four times its investment in five years. There was a sense of momentum. Perhaps, a bit too early.
A month into due diligence, another version of the company began to form. What began as a golden opportunity started to look like a case study in how top-decile metrics can mask bottom-decile customer stickiness.
The company touted its 95% gross retention rate, which would place it at the top quartile of private-SaaS performance, according to the 2024 KeyBanc–Sapphire SaaS survey (15th-year study by KeyBanc, a top U.S. tech investment bank, and Sapphire Ventures, a $10B+ growth fund; figures are routinely quoted on Atlassian, HubSpot, and Snowflake earnings calls). But it turned out that this impressive metric was driven by deep discounts that were buried in its contract notes. Once the heavy discounts were stripped out, true retention fell to roughly 82%, a level that KeyBanc tags as 25th-percentile. In other words, what looked like the best-in-class was really closer to bottom-quartile performance.
The client didn’t walk away. Despite revenue quality concerns, the company’s strong free cash flow, minimal debt, and disciplined working capital management signaled that it could self-fund growth and avoid a cash crunch post-close. That resilience justified moving forward, though not at the original price and unfortunately for the fledgling SaaS company, the deal price was cut by 40%.
This wasn’t about fraud or failure. It was just a tale as old as business itself: a company with two faces. Understanding both isn’t just about spotting red flags early or presenting the clearest possible story to potential buyers. It’s about building trust, reaching a fair price, and avoiding costly surprises.
Measuring the cost of Hyde
What our client faced in its deal with this SaaS company is not uncommon. Independent benchmarks confirm that last-minute “growth engineering” leaves a visible fingerprint in the data.
VistaPoint Advisors (a FINRA-registered, SaaS-focused sell-side bank) cautions that buyers routinely marked down valuations when they detect a surge in discounting in the run-up to signing, calling such spikes “a red flag for buyers.”
The operating impact is material. Paddle/ProfitWell’s 2022 study (aggregates invoice-level data from 6,000 subscription businesses; Paddle handles billing for GitLab and Miro, and ProfitWell provides analytics to >30,000 SaaS businesses) found that customers who were gained on discounts of greater than 25% turned over at more than twice the rate of companies with minimal discounting and generated roughly 30% lower lifetime value. Even the headline “expansion ARR” proves fragile once you look at activation. Userpilot’s 2024 benchmark of 181 SaaS vendors (drawn from raw event logs rather than survey responses to provide real adoption rates) puts median core-feature adoption, the share of users who actually use a product’s main features, at just 16.5% (top decile: 31%), meaning that a sizable share of the add-on revenue booked ahead of sale is never truly used in production.
It’s not just SaaS companies. Consumer-facing companies can drum up a similar story. A D2C brand showed impressive growth, which gave investors confidence about the potential deal. But a deeper review of its web analytics uncovered it was bots inflating the company’s “new customer” numbers, a risk echoed by Okta’s Customer Identity Trends Report 2025 (based on billions of authentication events from >18,000 enterprise tenants; cited by Gartner and the FBI) which found bots were behind 46% of all customer-registration attempts last year. The buyer walked away.
This type of spin can pose serious consequences later down the line. A digital health company touted its low customer attrition. But a stack of support tickets actually showed several crashes risking HIPAA violations that can come with a fine of $50,000 per infraction with an annual maximum of $1.5 million (a penalty recently faced by Warby Parker). Against that risk, the buyer adjusted its offer to a $20 million earnout instead of upfront cash.
Taken together, this shows why glossy top-line lifts built on heavy pre-LOI discounts and lightly adopted upsells so often unravel after close. Jekyll might make the first impression, but Hyde is never far behind.
Where to find signs of Hyde lurking behind Jekyll
Overfocusing on top-line trends can mask both risks and opportunities. The ARR headline in the CIM may draw you in, but it can overstate the cash you will actually collect.
First, check whether customers are using what they buy: if log-ins and features use trail off, today’s “expansion” ARR is likely tomorrow’s churn. Next, compare the list price to what customers really pay. When an outsized share of revenue relies on steep discounts, growth depends more on giveaways than pricing power. Finally, dig into SKU-level data: even in SaaS, individual modules or seat bundles can be “stuffed” into the channel through quarter-end reseller load-ins or multi-year pre-bills, padding ARR while masking future churn and support costs. This same slice of data also shows which modules deliver the healthiest gross margins, arming sellers to refine their story and buyers to model real cash conversion.
By testing usage, realized price, and SKU economics in this way, investors look past flattering averages to spot Hyde beneath the surface. For sellers, it can help build real growth stories that command premium valuations.
Don’t ignore Hyde, embrace him
Every business has its Jekyll to put forward. But the strongest deals are built on the full picture, warts and all. When both buyers and sellers embrace the whole story, integration is smoother and value creation starts off on stronger and more transparent ground.
Because in the end it’s not Hyde himself who kills deals. It’s mistaking him for Jekyll.
