Jason Lemkin: How far in advance should you build a relationship with potential M&A advisors for a SaaS startup that is targeting a ~$50-$75M exit?



1 day after you get an offer.

Really, M&A advisors in tech at least almost never ever actually get you an offer to sell your company. Ever.

Yes, if you are doing $15m ARR with $3m in EBITDA, they can sell the company. But that’s not a SaaS start-up. Not usually.

Instead, what a good M&A advisor does is get the price up. They usually do this by either getting another offer, or more often, by getting an Almost Offer, that creates enough uncertainty that the prospective acquirer ups the price.

But usually you don’t need that help until you have an actual offer, or at least, soft offer or pre-offer, a BigCo telling you an offer is coming.

More here: If You Sell Your Company, Use a Banker

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Published on June 28, 2016
  • Marc Anderson

    Literally first time on this website and because I’m an M&A advisor and this post was on front page it grabbed my attention. And in full disclosure my primary sector of focus is healthcare services. But I do have a SaaS HCIT client and I recently helped lead a client’s investment into a SaaS facilities management company (great group of guys doing really cool stuff by the way – AkitaBox.com).

    Anyways… so reading through some posts on the topic, I would offer the counter point that operators and potential sellers would be wise to leverage the market knowledge of an M&A professional early and often – even if they don’t ultimately use one. M&A advisors love to tell you how smart they are and how much they know about YOUR business and sector – for free – in hopes of one day being engaged as your advisor! Some of it is likely useless to you but hopefully a lot of it won’t be. There’s a reason why venture/private equity/established company’s meet frequently with bankers.

    What I frequently see is an owner all of the sudden needing capital to grow or deciding they want to sell their business but have no understanding of the process and have done little to prepare their organization for such an undertaking. From a VC perspective in a company with little to no current earnings, things like operational and financial diligence may be less important and may not drive investment decision. BUT if maximizing equity value, regardless of current financial / operational capabilities, is important, simple preparation, house cleaning or even window-dressing can make a big difference and potentially change perception / valuation paradigm. For cash flow positive businesses, even more so. An M&A professional would likely advise you as such and likely would help with decision points as to what a potential seller could do to remedy any short falls or be better prepared. Further, an M&A professional in your sector should be able to keep you abreast of deals of importance to your industry; sector valuation metrics and trends that can help one understand current / expected future value and / or what attributes to the market are important for maximizing value in an eventual equity raise or exit; and likely offer input on what potential competitors or similar operators are doing in their particular business that you may or may not add value to you. Lastly, I have seen the most operationally and financially weak businesses and the most buttoned-up and professionally run businesses, both with comparably attractive and disruptive business models, trade at massive valuations and ho-hum valuations, respectively – all because of the advice, guidance and marketing effort of their advisors, or lack thereof. It is true that if you have $15mm in ARR / $3mm in EBITDA OR you are the next great AkitaBox (plug:) you can get your own offers but 1) it is a difficult undertaking to find the right buyer / investor while running a company and 2) if you are unrepresented, they will likely be well below “market value”. If you aren’t cash flow positive and maybe a more esoteric software or business model 1) and 2) aforementioned will be greatly exacerbated. Institutional investors don’t make money by overpaying on the front-end and for as much “value” as they can bring an operator, if properly marketed, you will likely find equally value-added partners at a higher valuation. And strategic’s will likely only pay for the perceived synergy / accretion you are able to articulate – whereby a seasoned M&A advisor might be able to more clearly articulate and quantify for you.

    By the logic of the posted approach, in perhaps a more easily relate-able concept, it strikes me as akin to saying a real estate agent doesn’t get you an offer…. well, why does anyone use one? All the same reasons you should for potentially selling your business, except a business is typically infinitely more difficult to sell than a house.

    Good luck with your biz!

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