What I Learned Last Week 11.17.2023
Curating the best M&A, SMB, and EtA-related content since 2020.
Hello Friends!
In this week’s issue of What I Learned Last Week:
📰 Articles
🧵 Best of X (Twitter)
🗓️ Events
⚒️ Tools & Resources
💡 How I Can Help
This issue of The Business Inquirer is sponsored by Smash.vc
Buying a business with the SBA?
Would having a capital partner help?
At Smash.vc, they do two things:
Buy minority stakes in existing small businesses.
Partner with entrepreneurs trying to acquire new ones.
If you're actively looking to buy a cash-flowing business using an SBA loan, hit them up if you'd like a partner.
They contribute capital, give advice, or help with growth when asked... but stay out of the way the rest of the time.
Silent partners there to help when necessary, nothing more.
If interested👉 go say hi.
📰 Articles
Q3 SaaS Trends Report: Prices Rising
Bloom Equity Partners analyzed Vendr’s “The SaaS Trends Report” for Q3 2023. The report indicates that despite economic challenges, businesses are continuing to invest in SaaS software, albeit under greater scrutiny and with higher costs. There's a noticeable shift in purchasing patterns, with a marked increase in Average Contract Value (ACV) and Customer Acquisition Cost (CAC), alongside a significant decrease in net new purchases. Companies are prioritizing renewals over new acquisitions, resulting in longer buying cycles and more intense negotiations.
Key Insights:
Pricing Trends:
ACV rose to $89k in Q3 2023 from a three-year low of $62k in Q2 2023, but is still down 17% year-over-year.
Sellers are raising prices to maintain ACV levels due to buyers' focus on efficiency.
Customer Acquisition and Negotiations:
CAC has more than doubled since 2020, taking companies about 48 months on average to recoup.
The negotiation phase has become the longest in the buying cycle, especially for larger contracts.
Tech Stack Consolidation:
Net new SaaS purchases have dropped by 37% year-over-year.
In Q3 2023, only 17% of transactions on Vendr’s platform were for net new software.
Buying Cycles:
Buying cycles for new purchases have increased by 37%, partly due to more stakeholders being involved in the decision-making process.
Top Purchased Categories:
Fastest-growing subcategories within Data Analytics include Data Integration, Data Science and Analytics, and Business Intelligence.
Q4 Predictions:
Expectation of a decline in Q4 purchases year-over-year.
Increased focus on internal consolidation and the build vs. buy debate.
Essential tools are likely to be prioritized, and negotiations on software pricing will continue to be significant.
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Ten Lessons from 20 Years of BCG’s M&A Report
The report reflects on the evolving landscape of M&A, highlighting consistent success factors across various market conditions. It emphasizes the importance of preparation, experience, timing, and focusing on synergies. The report also advises against getting enticed by megadeals, suggests embracing cash deals, and underscores the need for effective integration and transparent communication.
Key Lessons:
Preparation and Systematic Approach: Essential for navigating the unpredictable nature of M&A.
Building Experience: Experience in M&A leads to more precise due diligence, better market timing, and superior returns.
Mastering Timing: Timing is critical, with the best returns often found early in the cycle or during downturns.
Venturing Beyond Comfort Zones: Deals that slightly extend beyond a company's core business can yield higher long-term returns.
Focusing on Synergies: Identifying and realizing synergies are key to justifying and succeeding in an acquisition.
Effective Execution: Post-deal integration and execution are where the real value creation happens.
Avoiding Megadeals: Smaller, consistent acquisitions are more likely to create long-term value than large, transformative deals.
Cash Transactions: Paying a premium in cash for undervalued targets can be beneficial.
Innovative Deal Structures: Alternative deal types like minority shareholdings and joint ventures provide flexibility and new strategic options
Transparency and Communication: Open communication enhances value creation and facilitates successful integration.
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Should you consider seller financing when you sell your business?
The article from "They Got Acquired" explains the concept of seller financing in business sales and its implications for sellers.
Seller financing involves the seller lending funds directly to the buyer to purchase the business, bypassing a bank.
Benefits:
Tax advantages from spreading out sale proceeds.
Potential for a higher sale price.
Possible higher interest earnings for the seller.
Opens opportunities for buyers who might not afford the business otherwise.
Risks:
Reduced immediate cash from the sale.
Risk of buyer defaulting on payments.
Structuring the Deal:
Sellers should assess the buyer's creditworthiness.
Formal loan documents should detail terms like the loan duration, interest rates, and consequences of late payments.
Filing a UCC-1 form to register the debt and having the buyer sign a personal guarantee are recommended.
Marketing Tool: Sellers sometimes use seller financing to attract buyers and stimulate interest in the sale.
Asset Protection: Retaining business's registered internet domains as collateral is a strategy to mitigate risks associated with seller financing.
Seller financing can be a viable option for both parties in a business sale, offering flexibility and potential benefits, but it requires careful consideration and structuring to mitigate associated risks.
🧵 Best of X (Twitter)
Private Market Labs announced a partnership with DueDilio. I joined Josh on his podcast to talk about M&A deal teams, diligence, cost management, and more…
Tips to supercharge your deal flow…
Broken deal costs are real and can add up. Good to see a discussion of ways to align incentives between buyers and sellers…
Seek out industry experts to validate your thesis and have the flexibility to pivot based on those conversations…
SBA loans are more profitable compared to lines of credit. Best to bundle them together to increase your chances of approval…
Top insights from the recently released IBBA report…
Lenders don’t care about TTM earnings, they want a further lookback period…
🗓️ Events
University of Michigan ETA Conference (Jan 18-19) - Ann Arbor, MI
MIT ETA Conference (Feb 16) - Cambridge, MA
Wharton ETA Club (Spring 2024) - Philadelphia, PA
Capital Camp (May 21-24) - Columbia, MO
How did you like this issue of the newsletter?
⚒️Tools & Resources
I want to share some tools & resources that I have found helpful. Please note that some of these are paid sponsors of the newsletter.
PrivSource - PrivSource helps you source deals and connect with transaction partners without ever paying a success fee.
X5 Deals - Proprietary deal sourcing for a great price. They do the outreach and send you relevant, actionable deals directly into your inbox.
Interexo - Curated deal flow and data solutions. Since 2016 Interexo has been M&A industry’s trusted source for deal flow, with extensive coverage of industry data, from Private Equity to Lenders, Hedge Funds, Brokers, and more.
Rejigg - Platform that connects searchers/investors directly with owners of off-market small businesses ($500k - $10m revenue) considering exits. All deals are sourced by the Rejigg team. Their team adds 7-10 new deals each week
Acquisition Lab - The Premier Accelerator for Buying a Business created by Walker Deibel, Author of Buy Then Build: How Acquisition Entrepreneurs Outsmart the Start-up Game. They combine world-class education, a vetted community, extensive group coaching, and resources to provide the first do-it-with-you buy-side advisory service.
Smash.vc - Whether you're looking to sell minority stakes in your business to take some chips off the table, looking for a partner to acquire an asset, or needing capital to complete an SBA deal, we'd love to chat with you.
BizNexus - Marketplace + off-market origination in one platform. The marketplace averages about 10k active listings & pre-CIM opportunities, and the off-market origination focuses on data & multi-channel.
Search Fund Coalition - community for the Entrepreneurship Through Acquisition ecosystem. Monthly events and meetups for acquisition entrepreneurs.
Deal Sourcing Guide - a comprehensive list of business marketplaces, brokers, deal origination firms, and more.
💡 How I Can Help
Whenever you’re ready, here are a few ways for us to work together…
Schedule 1:1 consulting on deal sourcing, due diligence, M&A ecosystem, newsletters, entrepreneurship, or anything else you’d like to discuss
Promote your brand to business buyers, investors, SMB owners, and other M&A participants by sponsoring this newsletter
Assemble your M&A deal team with DueDilio
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