Operating multiple SaaS projects under one entity complicates acquisition expense attribution
David Newell · Episode 513 | SaaS Valuations + Dos and Don'ts When Selling A SaaS · Sep 8, 2020 · at 22:49
M&A advisor David Newell explains common operational pitfalls SaaS founders make when managing and accounting for multiple projects prior to a sale.
0:00 / 0:38exact quote · 38.2s
▶ Watch the full episode on YouTube → 720p mp4 · rendered on demand · StarZero watermark
“Where I see the biggest challenge come up with SaaS businesses is that in my experience working with a lot of SaaS business owners is that they often have multiple projects on the go at any one point in time, and they hold them all under one particular holding company, and they share their resources across different apps, some which work out, some which don't, which means that you then have this incredibly mixed Expense base across all of these different apps. So when you go to sell it becomes extremely impossible, extremely difficult to articulate to a buyer how much expense should be attributed to a particular app, the particular app in question.”
quote is from the automated transcript, cleaned for reading: filler sounds and stutters are removed, nothing is rephrased. names can be misheard (the analysis reads context, assessments check outside sources). how →
More from David Newell
$1M ARR triggers revenue multiples instead of SDE for SaaS acquisitions
“So as a rough guide, I would say that the revenue multiple starts to kick in as an approach or a valuation approach at, like you said, a million dollars in ARR. And that's not like an absolute hard and fast number, but the reason it's chosen there is typically…”
Private equity firms cap SaaS revenue multiples at roughly 8x
“It's anywhere between two at the bottom, where it's something that's really, really flat, stretching up to eight, eight times I've seen, kind of, private exe guys comfortably go to, they sort of tend to tap out a bit after that, and then north of that is very …”
Preparing a SaaS business for sale improves its day-to-day operations
“Almost everything that you do to improve the business for sale actually makes the business better operationally.”
SaaS founders need at least $100K SDE to use established brokers
“For us, it's about a 100,000. We tend not to list anything below the kind of quarter of a million mark, 300,000 mark. I mean, there are other more independent brokers or sort of smaller advisory places that might do it. But yeah, once you hit that kind of 100,…”
Median SaaS SDE multiple is 3.9x, typically ranging from 3x to 5x
“I would say that now the typical range is between three and five. The median, I would say, is probably at kind of 3.9 or so.”
Rule of 40 SaaS businesses command 3.5x to 4x revenue multiples
“If the business's revenue growth plus its EBITDA margin for that year is at or If you're above 40%, so let's say it's growing up 35% year over year, and it's got five percent in EBITDA margin, then it's just at that threshold. Then it starts to command, yeah, …”