🧐 What I Learned Last Week
Week ending Friday, July 15, 2022
What I Learned Last Week curates the most interesting content relating to business acquisitions, operations, entrepreneurship, finance, and more. WILLW is a publication of The Business Inquirer.
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📰 Articles
Blossom Street Ventures summarized a recent report from SaaS Capital which looked at the performance of publicly traded SaaS businesses during the 08/09 recession.
In summary, as a SaaS business, it’s not unreasonable to expect to grow through the recession, but recognize that the growth will be much more expensive to achieve. Make sure you have significant cash buffers and access to liquidity at all times; none of the publicly traded SaaS businesses went bankrupt but that’s only because they were able to access cash as operating profits swung heavily into the red.
SaaS performance in a recession
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Software Equity Group released two deep-dive reports on the SaaS market.
Valuation trends for public stocks vs. private M&A transactions continued to tell very different stories during the second quarter, as the M&A markets remained quite resilient in the face of a highly volatile stock market. Publicly-traded SaaS companies posted a median 7.1x EV/Revenue multiple, down 53% YOY from 2Q21’s 15.2x peak level of irrational exuberance in public equities. Yet, compared to the pre-pandemic average, public SaaS valuations are down a more modest 16%. Meanwhile, the quarter’s 6.4x median EV/Revenue multiple for M&A was down only 4.5% YOY, as strong demand for SaaS businesses again drove record activity through the end of Q2.
In response to current stock market volatility and market uncertainty, SEG recently surveyed the top software-focused private equity investors to get a real-time pulse on their views of the private M&A market and predictions for the remainder of the year. A sneak peek of survey results, which provide encouraging news for SaaS M&A trends in 2022, can be found in our reports
SEG Snapshot: 2Q22 SaaS Public Market Update
SEG Snapshot: 2Q22 SaaS M&A Update
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Axial writes on the continued strength of lower middle market M&A.
However, deal flow through the wider middle market has proven far more resilient following record-setting results for aggregate value and overall volume coming into 2022, per PitchBook’s latest report on this part of the private markets. And that general trend holds true of LMM deals as well. Private equity investors have generated $11.4 billion in deal value on 246 completed transactions. Those figures hold up against many opening quarters of the past decade and considerably outpace those for, say, Q1 2012 at just $8.1 billion in sum on 187 deals closed.
LMM Remains Resilient in the Face of Recession
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Richard Patey writes the Alts by Flippa newsletter where he talks about alternative assets, M&A, and everything related to the Flippa online marketplace. I recommend subscribing. In the latest issue, he discusses his journey of acquiring an offline business in the UK (a Cafe) and the importance of getting a Quality of Earnings report.
If this was an online business I’d pay for a comprehensive Flippa Due Diligence report or use Centurica…
However, in my case I’m getting a local accountant to do a quality of earnings report. I’ve not personally run into this yet in the online business world, but it’s something that will become more common within Flippa as it continues to move into the lower middle market.
There are online providers who will do QoE, such as DueDilio by Roman Beylin:
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Ryan Goral of G-Spire Group outlines the valuation framework that his firm uses when analyzing a business.
As a fractional corporate development executive, one of our responsibilities is to offer our advice on the valuation of the operating companies our clients are looking to acquire. One of the things I am most frequently telling clients is some version of ‘value is based on the future free cash flow of the operating business discounted back today at a rate that adequately incorporates the risk of those cash flows being realized’. The purpose of this article is to highlight some of the major muscle movements in a valuation process.
🧵 Twitter
Great discussion around QoE…
A good framework for finding acquisition opportunities…
Pointers to up your managerial game…
The costs of being a franchisee…
Comes down to personal preference…
Great story…
Content marketing works if done right…
Great thread on optimizing the finance function within an SMB…
🤔 Thoughts, Events, Other
Centurica
For those who don’t know, Centurica is one of the early pioneers of offering due diligence services for online businesses. We’re lucky to have them be part of the DueDilio network. Centurica recently changed hands when Nate Ginsburg bought the company from Chris Yates. Quiet Light Brokerage has a great podcast episode with Nate where he talks about his entrepreneurial journey and buying Centurica.
Centurica Trades Hands — How the Deal Went Down
🛠 Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these may contain affiliate links. This means that I may receive compensation if you sign-up and use them.
Cerebro Capital - Cerebro has a network of 1,500+ lenders who can provide debt financing for your acquisition, refi, etc. $500k minimum.
X5 Deals - Proprietary deal sourcing. They do the outreach and send you relevant, actionable deals directly into your inbox.
Curators - Proprietary deal sourcing. You need targets that fit your investment criteria, and Curators delivers week after week - we even update your personalized database on a daily basis with new information on best-fit targets.
BizNexus - Proprietary deal flow, deal aggregator, and exit prep. Local Boston company and I consider the founder (Adam Ray) a friend.
PrivSource - Deal aggregator for lower and middle-market listings.
ProjectionHub - Access to 50+ CPA-developed financial projection templates. 25% discount using code “duedilio” at checkout.
Logology - Best automated logo & brand identity tool I’ve come across.
DeepBench - Access a cutting-edge expert network. $200 discount.
OpenPhone - The best VoIP phone solution that I have found. I use this for DueDilio. You get a $20 credit if you sign-up.
Eloquens - Knowledge marketplace. I’ve purchased a few templates from them.
Deal Flow Scout - Peer-to-peer deal flow exchange. Free, open, transparent.
Deal Sourcing Guide - A directory I put together of online marketplaces, brokers, DFY deal flow, and more.
That’s all for this issue of What I Learned Last Week!
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Important Disclaimer: This newsletter is provided for informational & educational purposes only, and should not be relied upon as legal, business, investment, or tax advice. This newsletter may link to other websites and certain information contained herein has been obtained from third-party sources. While taken from sources believed to be reliable, it has not been independently verified. The Business Inquirer makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. References to any companies, securities, listings, investments, or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any business, tax, or investment decisions. Content in this newsletter speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.