Inaugural Seller Education Webinar from January 26, 2022
This is the recap of Acquire’s inaugural Seller Education Webinar. The goal of the webinar is to give any entrepreneur looking to sell their startup an overview of the acquisition process so they’re more prepared for what’s ahead.
- Main Presenter: Paul Kelley, VP of M&A
- Panelist: Andrew Gazdecki, CEO
- Panelist: James Graves, General Counsel
Topics covered
- Valuations, possible deal structures to consider and why
- Marketing materials: Preparing offering memorandums or executive summaries
- Internal due diligence / how to build a data room
- Fielding buyer inquiries
- Handling multiple buyer interest
- Vetting buyers / confidentiality
- Sharing company information
- Fielding offers / LOIs / no-shop clauses
- Transaction planning
- Buyer and seller disclosures
- Due diligence
- Financing, escrow, and funding
- Understanding the allocation of purchase price
- Close of escrow, training, and transition
Fun Stat
Attendee’s came from 28 different countries world-wide. Acquire is proud to serve such a diverse and global community.
Additional resources
- Preparing for a sale
- Determining value
- Marketing materials / deal book
- Fielding buyer inquiries
- Vetting buyers
- Sharing company information
- Due diligence
- Financing, escrow, and funding
- Common deal structures (Video)
- Seller financing (Video)
- Allocation of purchase price
- Close of escrow, training, and transition
Q&A
How do I overcome people who ghost after introductions? It seems like 90% don’t reply after getting access. Is our deck really that terrible?
Answered on Webinar: 19:14 (Hyperlink from YouTube Video).
Is there a particular size of business where you’d expect to see a CIM?
Answered on Webinar: 20:10 (Hyperlink from YouTube Video).
How do you factor in the size of the market into valuation?
Answered on Webinar: 21:52 (Hyperlink from YouTube Video).
If you know that a big customer is going to churn in 6 months, do you disclose it? If so, when? It doesn’t show up anywhere in financials until 6 months from now.
Answered on Webinar: 42:54 (Hyperlink)
I listed my website on Acquire to see if there’s traction. It’s not completely built, I have zero MRR, zero users, but I have more than 10 listed buyers interested. Let’s say if I want to sell it at that stage of development. How do I price it?
Answered on Webinar: 44:42 (Hyperlink)
Experienced M&A advisors say that giving exclusivity for the deal is a market standard. But working with only one M&A advisor also seems risky. What do you suggest about it?
Answered on Webinar: 48:28
What exclusivity time period would you suggest negotiating for?
Answered on Webinar: 1:01:00
Any suggestions where can we look for market-mapping/intelligence for our own industry in order to see history deals/volumes/levels/KPIs?
James: Our own reports are in the works! In the meantime, there are many free resources online published by several financial services firms. We recommend checking them out.
How should pre-revenue startups approach M&A?
James: Our best recommendation here is to get a few paying customers and some revenue before listing. We typically do not list pre-revenue startups except in very unique circumstances. Having just a few paying customers and revenue will drastically improve the appeal of your startup and will command a much higher purchase price.
Can you address a situation where we are primarily looking for strategic investment (vs. outright sale)? We don’t have much traction, so our financials are not attractive.
James: We do not list deals for fractional ownership or seeking outside investment. If you’re looking to do either, there are several other sites that could help you sell a piece of the business or take in investment funds. When you want to list your company for an exit, we’ll be here for you.
Do SaaS multiples usually correlate directly with profit margins? i.e. Profit margin of 10% may only justify 3x vs 80% getting a 12x?
Paul: Yes, profitability effects the multiple, however one would also need to look at the companies growth as it relates to profit margin. A common litmus test for gaging the performance of a SaaS company measures both revenue growth and profitability. For example, a company with 40% profit margin with 80% YOY growth is much more appealing than that of a company with 80% profit margins that stays flat. Having available capitol to invest in marketing and R&D is also a key performance metric. so many other considerations would come into play as well: growth rate, customer retention, market size, ARR, LTV/CAC (Lifetime Value/ Customer Acquisition Cost), Revenue churn rate and many other depending on your SaaS. if there's uncertainty there's potential to leave money on the table. you best bet is to get a valuation done on the company.
I listed my project on MA about 6 months ago, it didn’t sell (multiple was far too high). Should I re-list from scratch, or update our existing listing?
Rocky: If it's been over six months, reach out to support@acquire.com explaining you’d like to re-list with a lower asking price and we’ll be sure to help you out. You will have to recreate your listing with a new account so its a bit of manual work on your part, but it will definitely get a boost in visibility on the marketplace and might get another feature on social media or the newsletter.
What is the most valuable thing buyers look for in the business? Is it the data and content the business possesses, or users the business has, or technologies (e.g., IP, and patents) the business own?
James: This is typically completely dependent on the buyer and each transaction’s unique positioning. Each business is unique and should market themselves on the platform from a position of strength and highlight their core attributes. A buyer looking for what you uniquely bring to the table will usually find you.
What is the best way to value a startup when it’s not profitable yet?
James: There is no true “best way,” but as long as you have started taking on revenue, we would recommend starting with a multiple or your ARR or TTM, and then going from there. You can always factor your unique strengths, e.g., an impressive growth rate or a particularly valuable piece of intellectual property. Paul: You may also consider value based on replacement cost; Buy vs. Build acquisitions are happening daily on Acquire.
What’s the average sale price of successful transactions on Acquire?
Roger: The average sale price of successful transactions on Acquire so far is around $364,000. The aim was to help startups get Acquire'd for life-changing money and we've hit that milestone but we know there's more we can offer. As Andrew has stated before: “We’re just getting started.”
How do you find the right attorney to help our kind of startup through this process? I had a pretty bad experience the first time. Any tips on what to look for?
James: Our recommendation is to look for an attorney that has experience with deals (i) in your industry, and (ii) of the same or similar size as yours. Attorneys will often have their deal experience listed on their website profile. Take a second to read through those deals. Do they resemble your deal? Some other questions you should ask are - – Is the attorney responsive after you’ve reached out? - Are they transparent on their fees and proposed budget? - Do they seem organized? - Do you two get along on a personal level? - Do you see this as a longtime partnership? You’re going to be spending a lot of stressful hours together, and the importance of getting along well cannot be overstated. We have several attorneys on our M&A Advisor Directory that we have vetted and highly recommend. Some even come with alternative fee structures so that you know what you’ll be paying upfront. Check them out!
What should I keep in mind for international transactions?
James: These can be tricky and we highly suggest engaging a professional from our M&A Advisor Directory to facilitate them. Tax, regulatory, and money transfer issues are just some of the many issues you may encounter.
Any advice on deferred payments? Risk of default seems very real.
James: There is going to be a certain amount of risk in any payment structure that is not all cash, 100% upfront. We would recommend conducting due diligence on the buyer to help you assess the risk, and also engaging an attorney who can help you draft legal instruments that will streamline your remedies if there is a default and help to mitigate any such risks. Paul: Contingent payments work best when bridging a gap between your price expectations and the buyers perceived value and risk. Shared risk, shared reward.
* The content in this post is not and does not intend to be legal, financial, or any other advice or to establish a professional relationship of any kind. All information, content, and materials are for general information purposes only. Please seek the services of an M&A professional before entering into any transaction.
