SaaS Deal Check

July 09, 2023

by an investor from University of Delaware in Wilmington, DE, USA

I wanted to get feedback on a B2B SaaS/subscription based deal I’m working on. First time acquiring a company this size so I appreciate any insight. Here’s are the quick highlights -

Financials: 700k Rev 550k SDE Purchase at $1.65m Owner operated, full time, zero employees.

Business: The product helps businesses in this industry operate. 50% of revenue is tied to CC processing / 50% subscription.

Competitive landscape: About 10 competitors in this space. One PE acquired competitor that has leading market share.

Risks:

Technology is aging and needs an overhaul and additional features to remain competitive.
CAC has increased substantially due to PE competitor, but aging tech also plays a role in this. I know I can bring the product up to current market standards and add significant value.
A few other competitors have come up for sale&sold in last 6mo so I’m concerned there’s an underlying industry issue I’m missing
Small customer base <500 (buy vs build?)
Industry the SaaS supports is seeing some PE roll ups which leads to customers moving off the platform.
50% of revenue is tied to customers success (due to CC profit share)

Opportunities:

Customers are typically locked in as moving to a competitor requires effort
Long term history of existing customer base
Post redevelopment, product is well positioned for growth
Purchase price supports financing with solid cash flow for reinvesting in the business/development
Owner does not focus on sales/marketing/poorly deployed ad spend
Improve processes and reduce time currently spent
IBIS report shows industry is still growing YOY
Potential to roll up some competitors

Reply by a searcher
from Roosevelt University in Boston, MA, USA

Like home renovations, there is an argument for a quick house flipping if thats the true purpose. But if you are looking for the highest IRR over time, you'll want to sell the business as a SaaS business. The business model seems very much like Toast who used to get 50% of revenue from SaaS and 50% from CC fees but over time the CC fees became the main business (90% of revenue now). I'd ask about the history of revenues and has CC revenue grown more rapidly than SaaS revenue. It still might be a great fit for your thesis but sometimes these businesses are nothing more than fintech with a UI rather than a true SaaS

Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

It looks like an interesting opportunity. If you would like to discuss from a financing perspective and get some feedback on how lenders would view the opportunity, we would love the chance to assist you. We are a Commercial Loan Brokerage shop with over 500 funding partners and we do a substantial amount of business acquisition financing. We also have done other SaaS deals. You can reach me here or via email at redacted Good luck.

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