Lexi Grant (L): Hi. I’m Lexi Grant, founder of They Got Acquired.
I’m excited to bring you this conversation about our SaaS Deals Report. You now have access to lots of examples of SaaS deals, including data and context on how the deals happened and what they looked like. Now we want to tease out some of the big takeaways so you can use this information to inform your own exit planning.
Joining me is Jon Hainstock and David Newell. They’re both M&A advisors at Quiet Light brokerage. Quiet Light helps lots of SaaS founders sell, and they’re our sponsors for this report.
I learned a lot from Jon and David during this conversation. I really appreciate how willing they are to explain the SaaS landscape in a way that feels accessible like I’m talking to a friend, a friend who’s highly knowledgeable about SaaS acquisitions.
We recorded this conversation with founders in mind. But if you’re an M&A professional or you’re looking to buy a SaaS business, you’ll probably find it interesting as well.
Thanks for being here and enjoy the discussion.
Lexi: Our goal for the conversation today is to call out some of the takeaways for anyone who’s looking at this SaaS Deals Report. And hopefully help our listeners understand how they might use this information to set themselves up for their own sale.
But first I’d love to introduce the guests we have with us today and have them give us some background on why you’re qualified to help us interpret the SaaS landscape. You’re both M&A advisers at Quiet Light brokerage, which is our sponsor for the report, so you help founders sell their businesses. Can we start with David? David, can you tell us a little bit about you?
David Newell: Yeah, I’d love to. Thanks for having us on Lexi.
I started mergers and acquisitions right out of college, so I’ve been doing this for 13 years now. I started in Citigroup in investment banking in London in M&A for the UK team doing Telco’s technology. And then, after 3 years or so, which most people find feels like a decade in that industry, I left and then joined FE International, where I was the head of brokerage and operations there, which is another kind of online small to mid-market brokerage company that specializes in the sale of SaaS businesses. We scaled that very well in the UK and then took it over to America, and I was involved in a lot of the exits there most notably selling Rob Walling’s company Drip to Lead Pages.
Then I took a couple of years out, kind of focusing on my own businesses. I have a particular interest in the self-discovery and personal development space. So I launched a couple of businesses there and then I joined Quiet Light in 2019, and this is going into my fourth year now. I actually just closed the largest deal I’ve ever closed yesterday, which was about my 110th deal. Probably about 30 or so of those are SaaS businesses—actually, probably about 40 now—the rest e-commerce and content. I feel like a bit of a dinosaur in the space now, even though I’m still not that old, but very knowledgeable in SaaS exits, particularly the B2B space, and particularly in the $25 million and below area.
Lexi: Well thanks for sharing that knowledge with us. We appreciate it. And Jon?
Jon: Yeah, so my intro’s going to be a little bit shorter, I don’t have that long of a sheet here. But you know for me, my experience was previously building Zoomshift, which is one of the companies in this report, and exiting that business in 2020, and then after taking a little time off, realizing I really wanted to be a part of what Quiet Light was doing in terms of helping entrepreneurs with the exit process, just having gone through that and feeling the pain and the difficulty of it made me motivated to be a part of making it smoother for entrepreneurs. So, that’s my primary focus.
I also have a couple other software businesses on the side and I’m continuing to chip away on those mostly as a way to stay close to SaaS as a category in general, and to be very connected with having skin in the game in that world, because I like to know what’s going on and and just have a very clear understanding of what’s what’s happening in the market. My first year under Quiet Light and it’s like nine deals or something like that and a lot of them were e-commerce and content. David and I took some to the market together. Excited to be here and excited to chat and go through the report together.
David: We should say here that Jon is famously humble and that he actually had an amazing exit. Someone needs to underline that before you just let that glide out.
Lexi: That’s what I think is so cool about the work you do, because it’s unique to have an advisor who has gone through this process themselves at least once, and some of the Quiet Light brokers have gone through it more than once. I think there’s something to that—you kind of understand that this isn’t just a transaction. There’s an emotional component here that’s really important to a lot of us. So, yeah, I appreciate that piece.
Well, let’s start with, just generally I’d love to get your take on what you thought when you read this report. It’s one thing to hand everybody a whole bunch of numbers and a bunch of stories and say, “Hey, this is a great starting point” and it really opens our eyes to the possibilities and what you might be able to achieve on your own. However, what do we do with it? How do we think about the information in here and how do we use this to set ourselves up for our own exit and and think about what we can apply here and what’s an applicable takeaway that we can use for our own company.
David: One of the first things that really stuck out for me was the kind of formalization of the buyer landscape over the last few years. In the report, you’ve got a lot of private equity buyers dedicated to buying SaaS businesses now, as well as individuals. There’s a lot of really good quality, sophisticated buyers that are dedicated to working with solo founders or small founder teams that just didn’t exist like five six seven years ago. I think that a lot of sellers, in my experience, wonder “Who’s going to buy my business?” and, if they buy it, “Am I going to be stuck in it for months or years, and are they going to be painful to work with? Do they know what they’re doing?” That used to be more of a question mark five six seven years ago; you didn’t really know the advisor and this market wasn’t formalized. There were a lot of individuals in it and there was a big range of level of sophistication and now that’s just not the case.
I think there’s a lot more liquidity in the market for SaaS business owners and these are really, really good quality businesses that have gone to really good quality buyers. One of the things that struck me is that a number of the businesses acquired in the report through SureSwift Capital and so forth are people that I’ve seen speak at business of software people that I’ve seen speak a micro-conference. Around that community, they’ve learned from advisors and other people how to set up for success. What I saw over and over thematically in this report and the case studies were founder teams mastering the process of after getting that year-and-a-half product market fit scaling process done, really starting to move themselves out of the business of the day-to-day nitty gritty development of it, and onto the management, operational side, so that they could set it up for handing over to a buyer quite easily. Because that’s the number one thorny challenge that I see with SaaS businesses: often, they are started by technically very capable people that are often very close to the heart of the original technical solution. But then find it hard to get themselves out of it or hard to remove themselves from the team and so I think that a lot of these sellers did an excellent job on that. And it’s one of the things that we work on quite a lot: exit planning over a 6-12-month horizon with sellers.
Lexi: How does a buyer think about it? Do they ask those questions when they’re looking at whether to buy a business? How are they thinking about it?
David: They’ll be probing very much to figure out what we call the “secret source” of the business: Where are the key critical components of this business? Who’s really important to it? What’s really important inside it? Who was responsible for developing those or who’s responsible for looking after those? They ask very pointed questions with respect to who develops the codebase, who is working on new updates / rollouts, who’s visioning the product strategy, who’s taking care of customer support, and how’s that managed. And really becoming intimate with who are the actual power stakeholders within the business to make sure that they’re definitely coming across with the business or if they’re not what the kind of transition plan looks like and if the owner is still too enmeshed in the business it does create complications and these complications extrapolate upwards significantly with the size of the business. So, if you’re trying to get out of a larger business and you’re more enmeshed in it, you’re going to be required to stay in it for longer post-transition and that’s generally speaking the last thing that most founders want to do when they’re thinking about exiting. It’s one of the harder things to start to plan for as you try and exit.
Lexi: When you try to think about taking yourself out of the core operations of a business so that you can turn to someone else, doing that also just makes the business easier and more fun to run. For example, I saw one founder who was taking some steps to make the business run without her so that she could sell the business and she ended up turning around and saying, “Actually this doesn’t take me all that much time anymore. Maybe I should keep it!” Many of the things that are best practices for setting up your business to sell also mean you’re building a more-stable and enjoyable business to run.
David: That is like The Golden Rule. It’s almost common sense if you think about it. If you step outside of your business and think if I was going to buy and run somebody else’s business, if I wanted something really easy and fun, well-managed to run, I would pay more for that versus the opposite. When you think about trying to tee your business up, that’s the journey that you need to take. Now, some things are really necessary to do and they generally involve getting the owner and owner dependency out. Some things you can leave behind. But the more you do yourself versus requiring a buyer to do upon acquisition, the higher the value you’re going to be able to get for it. So you do get paid basically upfront for that work and you get paid more upfront than you will do in terms of the discount you’re going to get by not doing it. So, it’s worth digging in and doing all of these kinds of things.
Lexi: I heard one founder say buyers want to buy a machine. Of course, they want a business too, but they want a machine that’s going to run for them. So how can you create that for them?
David: The first thing a buyer will think—almost at any price point, but particularly in the micro-acquisition landscape we’re talking about (like sub $10-20MM)—is: How do I get my money back? Because they’ve put down 4, 5, 6 times, and the first thing they want to be assured of is how fast they can get that repayment period. Sometimes that’s driven by financing, because they’re bought by debt. But, mostly, it’s just a general investment consideration. The degree to which they have high confidence that they’re going to get a repayment period that’s predictable or potentially even faster than they predict is the degree to which they’re going to pay more for the business. And the degree to which they have a high confidence in that is based upon that machine-like quality of the business. If you can hand something over that’s reliably turning over that return and it’s easy to operate, they’re going to pay for it.
Lexi: It’s helpful to get in the head of the buyer a little bit because I think, as founders, it’s so easy to think from our perspective and when you go to sell. It is helpful to think of it from the other side. Jon, do you want to share one of the top takeaways that you noticed when looking through the report?
Jon: Yeah, I’d also love to just chat a little bit more on the buyer side because I thought that was really fascinating, too. The market is expanding in terms of the number of individuals and private equity companies called “micro-private equity companies,” thata are really interested in playing in this space, and so a lot more transactions are happening which creates more opportunities for founders to get liquidity. It is a pretty cool time—just something I’d highlight. Typically, if you’re on a software track, there are not a lot of paths. It’s either you hold on to this bootstrapped business for as long as you can and cash flow at the best you can, or you’re kind of on the venture capital track and it’s a totally different world going all in. Now, there are options along the way to take chips off the table and reset, largely driven by the market for these types of assets. We totally agree with everything you guys are talking about around the buyers and their mindset and getting the money back.
The other thing I’d say is with buyers, what’s interesting is that the lens that they look at your business through is largely dependent on how their thesis is set up and what their skill set is. These entities—the SureSwifts and some of the other micro-private equity companies out there—are structured in a way that they can look at a business and say, “What’s my first-year plan, the skill set that I have core competency in?” Maybe that’s Google Ads or maybe their lever point is reducing churn, or something like that. It’s a very clear path for them to see how they would get their money back. It’s not always clear to you immediately because your head’s down in your business and you’re not necessarily seeing the business through that lens. Something to also be aware of is the people on the other side of the table are just people like you. They just have a slightly different thesis or a skill set that allows them to see your business differently. They might also see it the same and in certain ways, right? If growth is good and consistent, and churn is low—and there’s not too many different ways to see that—but, in terms of how they grow the business, how they think about operations, quick easy wins. There’s a lot of things there that people can apply, and you might not see them. It’s just something to be considered when you’re having those conversations with buyers; really try to understand from their point of view. What’s the lens they’re looking at? It can help give you more data points that can help you sell the business. Not like you’re going to convince them to buy the business, but you will understand the market better and understand the buyer better.
Lexi: Maybe we can dig into that for a minute because we’re talking about the types of the buyers in this report and you both mentioned there are some PE firms, some individuals, and then some companies who are more strategic buyers. Is one of those buyers more common than the other? Do you see deals happening with certain types of buyers more than others? What are the pros and cons of each of those?
David: By far and large, in the sub-$1 million exit space, it’s individual buyers. Just because the kind of revenue rate and profitability of the business isn’t quite scaled enough yet, or that product-market fit hasn’t quite fully been established for micro-private equity companies to start jumping in. They sometimes play at the top end of that range, but they don’t generally. Then as you go into the kind of $1-5 million exit you start to see those companies coming in and then strategics likewise probably from like $2-3 million and up. The mix I would say we kind of tend to like categorize in terms of financial buyers and strategic buyers and then you can have a category in the middle that we call “quasi-financial strategic,” which are a private equity company that already has businesses similar to yours, and perhaps has an investment thesis in that space.
It’s 70% financial buyers, 20% quasi-strategic buyers and then 10% strategic buyers. Strategic buyers are a very small part of the market. The reason for that, largely, is that you need to find someone at the right time, the right fit, the right amount of money, and the kind of acquisition appetite to do it. Often, it’s quite hard to get all of those stars aligned. When you do, that’s when you start to see those really quite impressive multiples, and they’re often quite publicized. But it does tend to create a bit of a public perception that a lot of exits actually happen strategically, when in reality, on the ground, the vast majority of exits are going to private equity and micro-private equity buyers.
Lexi: Can you explain, for anyone who’s listening and doesn’t know the difference between financial and strategic, what that means?
David: Yeah, sure. A financial buyer is what we would consider basically an investment fund, a pool of dedicated money that’s purely dedicated to acquisitions. They’re usually run by a mixture of finance professionals—people from banking backgrounds and consulting backgrounds, plus operationally-intelligent people. SureSwift, who’ve acquired a number of the businesses in the report we’re looking at, would be a classic example of that set up by finance people in-housed, who have a lot of operational like technical talent. Their whole mantra and mission is to acquire businesses on their specific investment thesis, which, for them, is B2B above a certain level.
A strategic buyer would be a going concern, like a company in your space already. So, if you’re a social media app, there’ll be another social media app, or someone very closely adjacent or complimentary to you. They’ll be a company that’s actually operating that acquires other companies more haphazardly, or more “strategically,” but are not constantly in acquisition mode and constantly adding. The obvious reason why strategics pay more and tend to hit the kind of news headlines is that if they see something that they like: right place, right time, right amount of money, and right strategy, they’re going to be able to leverage a lot of synergies from acquiring your business much more so than perhaps a financial buyer would. They’ll have a complementary customer list, developer talent, all that shared executive experience and knowledge and be able to place those synergies into the business. A classic example of this would be when I sold Rob Walling’s business Drip to Leadpages, who, at the time, were obviously building a very impressive business in the lead generation landscape and wanted to add an email CRM system to it, and had a huge amount of contacts they could sell Drip into, as well as that development talent. So, obviously, they paid a pretty reasonable sum for the business.
Lexi: A lot of strategic acquisitions seem to happen when the buyer approaches a seller and, in fact, we’ve covered lots of those stories. But, what if you want to sell and, of course, you want to think if there are any strategics out there who might want your business. How do you approach that?
David: The honest answer, as boring as it sounds, is doing the outreach yourself. For example, when we are approached by a potential client that wants to explore an exit and it meets the criteria where we think that there’s going to be potential strategic interest, we will do outbound outreach to the CFO, the business development head, or the M&A head of various companies in that space. We’ll look at who has already bought businesses in that space in the last five years, who’s already stated that they were looking to do that, and then basically go and make those communications. If a seller or a founder wanted to run that exercise independently, that’s essentially the same work. In my experience, most sellers that have succeeded in doing that have found contacts that way or through conferences and that kind of thing.
Jon: If you are aware of some of the folks who could be potential buyers, you already know who they are. Whether it’s competitors or people who are somewhat adjacent, you might miss some of the private equity companies that own those strategic companies. A very easy step to take is to create a list of those folks in a sheet or something. Your list of strategic acquirers and then kind of start thinking about what would make this interesting to them, and start to get in contact with those folks just to keep those warm, so that when you do go to market and try to run a timeline that you have the best chance you can to actually get people to come to the table. It’s very likely that they are not interested and they say “No,” and that’s okay. But, I think it’s good to come up with your own list, think through it from a strategic level, and then whether you use an advisor like a broker like Quiet Light or not, you can kind of run the process once you have all those warm leads. Essentially, you know the right people to talk with at least. So, that’s a very concrete thing that you could do today: start building a list of 20-40 types of companies who you see as strategic in your space.
Lexi: Yeah, we’ve seen a lot of founders have success with this and, generally, they think of them in three different categories: there’s competitors in the space, there’s partners. It’s funny, sometimes people you work with are someone who’s hiring you already for whatever job they need done. Then, thinking more broadly about what other companies want to reach the same people as you. Although, that kind of takes it to another level. That’s sometimes hard to execute. That’s a great action item that people can take, and sometimes even if a founder isn’t ready to sell now, if you think you’re going to sell in a couple years, I recommend putting this list together now and becoming friendly with those people. Reach out and look for partnership. It doesn’t necessarily mean it’s going to turn into an acquisition, but, again, having relationships in your industry, in your field, and your vertical is a good thing for your business.
Lexi: Let’s talk a little bit about the emotional side of selling. We share a lot of context in these stories about how the founder gets to the point where they want to sell and then how they navigate that. Jon, I know this is something you’ve thought a lot about because you went through your own sale and had to figure out when was the right time to sell. Were there any throughlines that you noticed in the report around that idea?
Jon: Yeah, one of the things I noticed—and this is very common in the folks that I speak with as well as the kind of same process that I went through—there’s always this lingering question in the back of your mind, “Should I be selling my business? Is now the time to sell?” It’s usually in a down moment where you’re feeling a little burnt out, and you feel the weight of the business on your shoulders, and you just don’t want to feel that way anymore. One of the things I noticed in the report that I thought was interesting is this concept of being very indecisive about whether or not you really wanted to be committed to the process of selling your business. I feel like once you’ve kind of made that decision, everything else is a lot easier versus keeping one foot in and one foot out. It’s advice that I’d give to myself: from a purely financial standpoint, you can run the numbers and use various multiples and all that kind of stuff, and create the perfect spreadsheet. But I think you need to really do a gut check and spend some time considering if you’re ready to move on from the business yourself personally, and what that looks like. Obviously, if there are co-funders involved, you have to be in alignment there because, if you’re not, that can really ruin the process of course.
Spending some time, if you’re wrestling with it, either saying yes to it or saying no to it and kind of moving on in either direction. Because selling the business is a major distraction. It’s something that, once you get into it, it’s going to take a large amount of your brain space and you won’t feel like you can actually make moves in the business because you don’t want to screw things up. You don’t want to change the trajectory of your valuation and all these kinds of things. Once you get the business out there and you’re fielding offers and or under offer and due diligence, it can be a major distraction. You’re essentially going to be in limbo. Understanding what you’re getting yourself into ahead of time is a really good thing to come to. It’s something that, whenever I’m chatting with entrepreneurs, I’m always saying “Are you sure? Have you really thought about this? Have you slept on this? Have you taken some time off? Maybe you just need a break and you don’t actually need to sell the business. Or maybe you need to find somebody to replace those things that you don’t enjoy doing. Is that what’s going on?” And really coming to terms with that. Versus, just saying, “Yeah. Maybe you know for the right price I’ll sell.” I feel like that is a really dangerous place to be from a distraction and emotional standpoint of going through the ups and downs of a deal, having it fall apart, and kind of being left feeling a little broken by it.
I’ve seen that happen to a few of my friends and so it’s something to be wrestled with and once you’re kind of come to that decision, to be committed to it and move forward in a way that yeah it doesn’t give you a lot of turning back.
Lexi: What about on the other end of that spectrum, though? Because we talk with a lot of founders who are so burnt out that they wish they had sold yesterday. I actually have a blog post about this, where you sell before burnout because if you wait till you’re burnt out selling itself is a big job. And usually you have to run that big job while running your business. How do you help people navigate it once they’re in that burnout stage?
Jon: That’s a sad place to be in, unfortunately. Yeah, a lot of times we are talking with people who are in that state. I think when you start to notice that feeling and you’ve identified that selling your business is the direction you want to go, taking the steps and saying—if the timeline looks to be on average 45-90 days—backing out from what you expect the timeline to be in the preparation that is going to take getting to market as a forecast to where you are emotionally and where you expect the business to be.
If you can plan ahead, think a little bit long-term (6-8 months ahead), understand that you’re getting to your edge, and you’re ready to start making that call / start making that decision / start going through the process, then I think you got to kind of work yourself backwards from the timeline knowing that you’re talking about ninety days—sometimes longer than that, of course—and realizing that you’re going to have to have the energy to get through that. So I think it’s just having the foresight and the self-awareness to understand that it’s going to take a process. It’s not going to happen overnight. Do that gut check in a way so that you still have some gas left in the tank. Otherwise, there’s a good chance you’ll burn out before you get to the end, and then it’s a sad thing, because the business usually suffers, and then the valuation suffers, and then everything suffers. I’ve seen that happen already a few times.
Lexi: Let’s switch gears for a minute because I’d love to talk about valuations and multiples. Anyone who’s looking at this report will se we’ve included some multiples in here, but they might be thinking “What multiple should I expect for my business and how do I figure out how much my business is worth?” Can one of you speak to how they should think about that?
David: It’s obviously the central topic of debate when it comes to selling any business and in SaaS it’s an interesting one because the landscape is colored a little bit by a couple of different valuation methodologies that tend to kick in through different criteria. On the smaller end—what we might think of as sub-$1 million in revenue—what we typically tend to see are businesses valued, not always, but predominantly, on what we call “seller’s discretionary earnings.” So, on a profit basis. That’s your earnings plus your personal drawings, travel expenses—discretionary things, basically—to give the real sort of underlying earnings of the business. The multiples there can vary anywhere I would say from sort of 3 to 5 maybe 6 times. That range is largely driven by a few factors: firstly, the year-over-year growth of the business, particularly revenue growth for profit as well. Secondly, the monthly churn of the business. Thirdly, retention metrics: lifetime value customer acquisition. So, really an evaluation of the solidity of the revenue profile of the business and the growth.
Of course, the trends are, ideally, flat or improving in all of those areas. The faster the business is growing, the smaller the churn, the better the LTV:CAC Ratio. Generally speaking, the higher up that 3 to 6 scale you’re going to be. Where it gets a little bit interesting is that as you kind of hit the million dollar ARR figure, you start to see a bit of a morphing towards more revenue-based valuations for SaaS businesses. And that’s where you start to see any multiples anywhere between 3 right up to you know 7-10 times, if the business is growing very strongly. That’s a function of a few things: One, the biotypes change it moves more towards that private activity strategic type buy as we were touching upon earlier. Secondly, because the product-market fit and scale of the business is starting to prove itself out such that the business can go on to grow substantially and, potentially, with more money, go up into the 8-9 figure range pretty quickly.
The challenge is what defines the criteria specifically between an earnings-based valuation and a revenue-based valuation and there is no real hard and fast rule about this. It generally starts to morph between the kind of million and ARR mark. It generally requires that the business needs to have 4% or lower in monthly churn. It generally requires that the founders are completely out on the technical side of the business. And it generally requires that it’s starting to morph into a much more company-type structure which can run autonomously, versus perhaps a more founder-led type business that’s still trying to find product-market fit. When a founder is thinking about how to value their business, the first thing to do is think about: What size is it? What position do I have in it? What’s the company structure? What’s the churn profile of the business? What’s the growth profile of the business? There’s already a few factors, but that will immediately put you in either one of those categories and then, realistically, you need to touch base with kind of like someone in the market because the benchmark for a business that’s growing say 40% year-over-year with $2 million ARR may have been 5x revenue last year, but now it would be more like 4x. The market has obviously come off considerably in the last twelve months so there’s definitely a public market movement that affects private comps as well. That’s the broad brush, but it will help shape some of the thinking that is needed to kind of give you an informed sense of your valuation.
Lexi: When you say “touch base with someone in the market”—I’ll just give you a plug here: I often send founders to Quiet Light to get a valuation, because you can talk about these numbers all you want, but you really need to apply them in a specific way as you just described to get an idea of what your own business might be worth. You can reach out to them and they will happily help you with evaluation.
David: I gave a bit of a technical thinking about the business but obviously a business is much more than just the numbers, right? I think we all know that and so those quantitative factors and slight qualitative factors help figure out what category you’re in, but you also really need to speak to someone to convey the uniqueness of the IP, the uniqueness of the differentiation you have, the quality of the barriers to entry in your market, your positioning versus your competitors, etc. All of those things have significant bearing on the eventual multiple that will be applied to the business and that’s why it’s also important to speak with an advisor that can give you a more-pointed sense of the valuation of your business.
Jon: I’d love to touch a little bit more on the valuation thing, because it was something I was stuck on a lot when I was considering selling the business. The value of the business is really what the market is willing to pay. So, these numbers that we start with are largely shaped by the numbers of the business, the financial metrics of the business, the narrative and the positioning, and what we think the market will bear. But it’s not perfect. When you go to market—and by “going to market” I mean actually start to take it in front of other buyers who are looking for these types of assets—it’s important to try to get as much feedback as you can during that process to understand how buyers are seeing the business, how they’re thinking about it, through the lens of the buyer—what does that look like to help inform how you’ve priced the business? It’s something to consider.
On the smaller end, when we think about discretionary earnings and stuff like that, a lot of times the businesses when they’re founder-run, a majority of the business is 95% gross margins, and all the money is going to you. You might see some valuation reports that are—even for small SaaS businesses or small Shopify apps—2-5x revenue. That’s largely because there are no expenses, so it’s like a proxy for what discretionary earnings are at the smaller level. The larger the business goes the more expenses it holds and the better the buyer has the ability then to use the earnings to operate the business in a way that’s not key-person dependent, and they can build out this machine. Something to keep in mind is when we see these multiples ranging anywhere from 2-3x on the SDE-side, all the way up to 10x in revenues, the factors and the types of buyers is a massive difference in terms of how people are thinking about it from the buyer side and what their thesis is if they’re going to try to grow the business to a place where they can sell to another private equity company in a few years, or if it’s kind of a holding situation to try and operate the business lean and collect as much profit along the way.
Stepping back and looking at the idea of a strategic buyer—they are all strategic and financial in nature in some way, in that they’re all trying to figure out what is the return: what’s my avenue to return? Somebody who’s strategic has a more-clear, faster way to that return / a better way to that return. It’s really important to yeah work with an advisor or think really critically about the type of buyer who might be interested and what’s their angle because it can help you position the business in a way that gives you the best multiple.
Lexi: Do you all put a price on the business, like an asking price when you take it to market?
David: Yeah, almost always, Lexi. We find that it’s important to set a guidance point for buyers to come in at. We do leave it to the discretion of clients if they actively don’t want to do that. But, generally speaking, they ask for our recommendation and our recommendation generally speaking is to put one in.
Lexi: This has been super helpful. Thank you both for taking the time, I really appreciate it. Can you tell everyone listening where they can reach you if in case they want to get in touch with you and maybe continue the conversation or get evaluation for their own business?
David: Sure I’m on firstname.lastname@example.org.
Jon: And I’m on email@example.com.
Lexi: Thank you both. I really appreciate all your insight. It’s so nice to have people who are really steeped in doing this every day, so that for those of us when we come in for the first time, we have someone to help us through it. So, thank you very much.
Jon: Yeah, thanks for having us.