How successful have people been with purchasing SaaS businesses?
July 28, 2020
by a searcher from Clemson University in Indianapolis, IN, USA
July 28, 2020
by a searcher from Clemson University in Indianapolis, IN, USA
from University of Pennsylvania in New York, NY, USA
Hard for me to generalize but based on my experience it's definitely possible to find deal flow in the space. Quality can be tough in ways you might not expect. Some major recurring problems were customer concentration, large percentage of legacy licensed sales, large percentage of custom programming, on-premise deployment at customers, legacy hardware, limited disaster recovery plan, older languages that are difficult to support, etc. The Spellbound team including ^redacted were great in helping us with the specific issues and getting our deal across the finish line. He has several articles here on the various types of "technical debt" you might encounter.
To the comment above, financing is still a challenge. At this size of the market most banks are still focused on hard asset coverage no matter how bulletproof the business model. It doesn't matter if the business grew consistently for the last fifteen years and through the last two most recent recessions - if it doesn't have assets it's not getting by investment committee. SBA was definitely the best alternative. The Live Oak team including ^redacted and ^redacted were fantastic and would recommend them to anyone looking to finance a SaaS transaction.
All that said a lot of the things that make SaaS attractive are true. Recurring revenue is certainly a blessing in the current environment. With vertical market SaaS it may not be the fastest growing or largest market but it's possible to have a real defensible niche. Having spent the last year professionalizing a SaaS business and developing the playbook, I'd be very interested in partnering with someone on another transaction in the space.
from University of Dublin, Trinity College in Dublin, Ireland
I do think there are deals to be done in SaaS if you can provide a good succession plan for owner/operators, return 1-3x invested capital to investors/LPs and ensure continuity for the staff/management team. These will only happen if you are dealing with owner operators who have already decided that exit is the best option for them now, this will likely be for human reasons (ie one of the 4 D's - death, disability, divorce, disagreement), owner operators will only exit when there is an external force making sale/exit manditory for them.
Nathan latka has some intersting content on this topic and breaks down a couple of his own acquisitions step by step in his blog.
The tricky thing about SaaS and owner operators who want to sell is that from once they make that decision to exit they inevitably neglect their SaaS and take foot off the growth / customer retention effort pedal. Ideal Saas M&A target should be default modest growth without much / any intervention from you - these are rare finds.